The stock market probably will not be disappointed by Q218 Corporate Earnings, due in July. Consensus looks for another strong quarter, with S&P 500 earnings up 20% (y/y), only a bit less than the extraordinary +26.6% in Q118. Besides a continuing benefit from the corporate tax cut, most of the macroeconomic evidence is positive.
The source of strength should come mainly from domestically generated profits rather than from overseas earnings. Stronger US economic growth and improved margins will be the main forces behind profit gains. Real GDP Growth should be at least as strong as in Q118, on a y/y comparison, based on the NY (3.0% q/q, saar) and Atlanta Fed model (4.8%) Q218 estimates. And, core price inflation sped up while wage inflation was steady -- resulting in better margins. Earnings from abroad should slow, however, hurt by a stronger dollar and slower European economic growth (probably a lagged result of the earlier strength in the euro) than in Q118.
Markit
Eurozone Real GDP Oil Prices Trade-Weighted
Dollar AHE Core CPI PMI
[ y/y percent
change ] (level)
Q117 2.0 +65.3 2.3 2.7 2.2 55.6
Q217 2.2 +13.1 3.1 2.5 1.8 56.8
Q317 2.3 +6.0 -1.9 2.5 1.7 57.4
Q417 2.5 +12.7 -4.1 2.5 1.7 59.7
Q118 2.8 +21.5 -6.6 2.7 1.9 59.1
Q218 2.8-3.3 +42.0 -0.9 2.7 2.2 55.9
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