In this earnings season, a volatile stew of expectations


Q1: up 8.4 percent

Q2 (est.): up 8.1 percent

Q3 (est.): up 7.9 percent

Q4 (est.): up 6.0 percent

Source: FactSet

That 8.1 percent estimated increase in second quarter revenue means that the majority of the pretax profit is coming from revenue growth, not cost cutting or productivity gains.

3. You will hear more about investment spending, including buybacks, dividends and (from a small group of companies, mainly Apple) repatriation of profits. Announced buybacks are already close to $600 billion this year and many are estimating it will surpass $800 billion this year, a record. (There were a little more than $500 billion in announced buybacks in 2017).

Unlike many prior years, buybacks are reducing overall share counts this year. Dividend growth has been more modest, but has been increasing as well.

4. The trade war commentary will be mixed. Pay close attention to comments from auto manufacturers and retailers, all of whom will likely have trouble passing on tariff cost increases and will be the first to warn investors.

Elsewhere, the Federal Reserve has already signaled that trade war concerns may eat into what otherwise looks like a strong increase in capital spending. Listen carefully. My bet is we will hear a lot about “concerns” but not a lot of concrete commentary like, “We are cutting cap ex spending 10% over trade concerns.” Not yet.

5. The key to market momentum is to maintain guidance given earlier in the year. I call it “The 20 percent club.” It is a rare year when the S&P 500 will see earnings growth of 20 percent or more for each quarter, but that is exactly what is happening:

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