Of Big Tech and S-curves

SINGAPORE (Nov 19): US stocks rebounded higher at the start of the month, on the heels of the steep selloff in October, where the Dow Jones Industrial Average and Standard & Poor’s 500 index fell 5.1% and 6.9% respectively. The reprieve was short-lived, however, as stocks succumbed to another wave of selling this week.  

Judging from the market’s reaction to the latest 3Q2018 result releases for US corporates, one would be forgiven for thinking that earnings were disastrous. In fact, according to data provider FactSet, blended y-o-y earnings growth for the quarter was a robust 25.2%, higher than the 19.3% forecast made at end-September, which also makes it the fastest pace of growth since 3Q2010. With about 90% of the S&P 500 companies having reported, 78% beat market expectations on earnings (and by wider margins too), while 61% were ahead in terms of sales.

The recent price decline, coupled with stronger-than-expected 3Q2018 earnings, does mean that valuations are now more attractive. The broad-based S&P 500 index is trading around 16 times forward earnings, between its five-year average of 16.4 times and 10-year average of 14.5 times.

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