The Times Herald (Norristown, PA)
Is earnings growth as good as it will get?
NEW YORK >> Here’s the challenge when something’s as good as it gets: What comes next?
Companies across industries are in the midst of reporting another quarter of gargantuan profit growth, driven by lower tax bills and a growing economy. Amazon said its net income surged more than tenfold during the summer from a year earlier, for example.
Yet stock prices are not getting the boost that they usually do when companies report better-than-expected earnings. On the flip side, investors have punished stocks much more severely when companies have fallen short of profit expectations.
Altogether the S&P 500 is still down about 4 percent since the start of October. That’s despite the index being on track to deliver roughly 25 percent growth in earnings per share for the third straight quarter. As of Wednesday, more than four-fifths of companies in the index have reported results.
The reaction can be tied to the gnawing concern among investors that this may be the peak for corporate profit growth. Analysts say growth may slow to a roughly 15 percent rate in the last three months of the year. In conference calls with analysts following their earnings reports, CEOs have been citing several challenges including rising expenses, President Donald Trump’s tariffs and slowing economic growth in countries around the world.
When Amazon reported its results two weeks ago, it gave a forecast for revenue this quarter that fell short of analysts’ expectations. Part of that was due to the expected effect of a strengthening U.S. dollar, which can dilute the value of sales made abroad. The weaker-thanexpected revenue forecast helped sink Amazon’s stock by 7.8 percent the day after its profit report, even though its net income far exceeded analysts’ expectations.
AP Business Writer