In the third quarter of the year, large-cap corporate earnings appear to have finally reversed a successive five-quarter trend of negative growth. This is significant because it bucks the consensus trend that corporate growth would lag at least going into the fourth quarter of 2016.
With a blended EPS growth rate of 1.6% for the S&P 500 as of October 28th, large-caps won’t be taking home any trophies, but each of the 11 sectors in the index is expected to contribute positive results for the first time in many a quarter.
Financials are seen as being pockets of strength in a strong corporate climate. While the prospect of an interest rate hike remains uncertain, what is certain is that the longer the Fed doesn’t act to raise rates, the greater the likelihood that they will act sooner rather than later. A bump in rates would have a pronounced effect on the bottom line for many banks, which is likely driving some of the current financial sector interest.
While small-caps have pulled back somewhat from the highs reached in September, the Russell 2000 is still outpacing the Standard & Poor’s 500 year-to-date in 2016.
Still, the Russell 2000 hasn’t yet returned its all-time highs reached in mid-2015. It’s clear that there are plenty of opportunities for investors in smaller companies, and continuing economic strength may provide a boost for many of these businesses.
Regardless of the economic outlook, election results, weather forecast, or global stock market expectations, our approach to stock selection remains the same. We continue to seek out well-managed companies and buy them at attractive prices, paying particular attention to fallen angels we might discover along the way.