Key points:
- The deceleration of median sales and earnings growth for S&P 500 companies abated, as growth equaled that of Q2.
- Sales growth of 4% and EPS growth of 6% matched the lowest totals since Q2 2016 and Q1 2016, respectively.
- Versus an EPS bar that was lowered significantly coming into the quarter, companies beat by a median of 3%, which has been typical of the past several years.
- Health Care was the clear large-cap standout, with best growth and beats and an acceleration in growth from Q2. Tech, Staples, and Cyclical were among the weakest.
- On valuation, a much lower 10-year yield supports higher stock valuations, and as long as earnings remain positive, the market should move higher. However, Q4 earnings estimates are still being lowered, notably for small caps, meaning we are not at a clear bottom yet.
- Similar to the corrections of 2011–2012 and 2015–2016, sector rotation has favored small-cap, value, cyclical, and industrial initially (and coincided with ~1.5% 10-year yield).
- Because of this our Focus List count has not increased much since October’s bottom. This should change if the rally persists and/or accelerates.
