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S&P 500 Revenue Trends Are Improving in Q2


Companies are reporting very solid revenues this earnings season.

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On Friday, FactSet updated its earnings stats for S&P 500 (INDEXSP:.INX) companies and there was a shocking surprise -- we are seeing a massive increase in companies beating sales expectations.

For the 74 companies that have reported second-quarter earnings, 73% have beaten consensus revenue estimates, up from 53% in Q1.

If this number can hold, it will be the highest such reading since FactSet began tracking this data point in Q3 2008, and it's way above the four-year average of 57.2%.

The beats themselves are also a larger magnitude than usual. Companies are reporting sales 1.43% above estimates versus the four-year average of 0.57%.

Health care, information technology, and financials are showing the biggest revenue growth increases relative to expectations, while energy and utilities are the notable underperformers.

Interestingly, in terms of price performance, energy and utilities have been the best sectors of 2014.

Unfortunately, the large percentage of beats hasn't moved the needle for Index-wide growth. As of June 30, estimated revenue growth was 3.0%, and current blended growth (which incorporates actual reports with estimates for companies that have not yet reported.)

However, that's not all bad news, because of the sector mix. On the plus side, tech and financials are levered to economic activity, and the big driver within health care is biotech, a growth industry.

And the underperformers, energy and utilities, in some ways represent burdens on individuals and businesses.

One quarter does not a trend make, but this is bad news for the bears.

This bull market is commonly knocked as being the result of cost cuts, share buybacks [subscription required] and dividends -- not genuine economic demand.

Low single-digital revenue growth isn't much to get excited about, but what if the demand side of the equation is being underestimated?

Twitter: @MichaelComeau

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No positions in stocks mentioned.
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