With the figures released by major corporations such as JP Morgan and Wells Fargo, the reporting season has begun for U.S. companies with publication of results from the fourth quarter of 2017. Over the next weeks, the flurry of results will first continue in the USA, before European corporations take their turn to report.
Even without the recent tax reform – which will soon deliver a notable boost to the profits of “Corporate America” (cf. previous blog entry) – the majority of U.S. companies have done very well in the final quarter in any case. We are expecting a rise in profits of almost 14% for the S&P 500 companies (sales growth: +10%). Comparably high profit growth was last recorded in the fourth quarter of 2011.
The driving force behind this development can be traced back to considerable profit increases in the following sectors: energy/crude oil (+134%), basic resources (+29%), technology (+16%) and utilities (+12%).
Taking into consideration the significant rise in the oil price in 2018, but above all owing to the tax reform, we are expecting profit growth for the S&P 500 to be considerably higher in 2018 than had been previously assumed by many analysts up to now. We anticipate earnings-per- share of 160 to 170 for the S&P 500 this year. At present, estimates are still at 150, but this can be expected to increase in the coming weeks.
In relation to our S&P 500 year-end target of 2,900 points, this results in a price-earnings ratio of between 17 and 18. This still represents a healthy valuation when compared with its historical performance (but a major undervaluation against the bond market), which means that the U.S. stock market currently appears to be more susceptible to corrections than other major stock markets around the world.