Halfway through earnings season, some very positive trends emerge despite high-profile misses 

  • Halfway through second-quarter earnings season earnings growth is running at 22.4 percent and revenues are up 8.6 percent.
  • Tax cuts have added 7 or 8 percentage points onto already strong earnings growth.
  • Nick Raich from Earnings Scout says: "As long as [earnings] growth is above trend stock prices can continue to trend higher."
Drew Angerer | Getty Images News | Getty Images

Fifty percent of the S&P 500 has reported through Thursday, and several trends are apparent. Despite several high-profile misses like Facebook, earnings and revenues for the second quarter are higher than expected, and estimates for the third quarter are holding up.

Earnings growth is running at 22.4 percent and revenues are up 8.6 percent.

Here's the bottom line: The overall market is holding up well — just shy of historic highs across all the major indexes — because:

  1. Revenue growth (8.6 percent in Q2) has been solid all year.
  2. Tax cuts have added 7 or 8 percentage points onto already strong earnings growth.
  3. Third and fourth quarter earnings expectations are continuing to hold up.

But several sub-trends are apparent:

  1. Companies that are adjusting guidance or missing numbers largely because of tariffs/higher costs are mostly exposed to the steel and aluminum tariffs.
  2. There's a split between those struggling with higher costs: Some can raise prices (Avery Denison, Whirlpool, Stanley Black & Decker, Honeywell) and some can't (Harley Davidson), and if you can't, you face margin erosion.
  3. Not all raised guidance is the same: Some companies provided marginally higher guidance — normally a plus — but not enough to impress investors (Boeing, Northrup Grumman).
  4. The dollar is becoming more of an issue. Many companies with large overseas operations, such as Illinois Tool Works, Coca-Cola, Whirlpool, Kimberly-Clark, Avery Dennison and General Motors, brought up the dollar strength and its potential negative impact on earnings.
  5. There are growing concerns that regulatory expenses will have a greater impact on technology and social media profits, particularly in Europe where new data protection regulations are now in effect. This was an issue for Facebook, Alphabet, and Spotify. Those regulations will "reverberate through the other social media platforms and have a negative impact on user growth," Christine Short from Estimize told me. (See Twitter's earnings plunge Friday morning.)

So what happens from here?

First, let's dispense with the big argument from the earlier part of this year that we are experiencing "peak earnings" and the market will go down from here.

Wrong. Everyone thought the first quarter were going to be as good as it gets, but the second quarter is almost as strong. The third quarter will be strong as well and may surpass the first quarter.

Earnings Scout's Nick Raich told me: "As long as [earnings] growth is above trend, stock prices can continue to trend higher." Raich has a 2019 estimate of 10 percent growth for the S&P 500, well above the long-term average of 6 to 8 percent. "You don't have recessions with 10 plus percent earnings growth in the S&P 500," he added.

Second, based on developments so far, we are focused too much on the tariffs. Yes, it's a big deal for a GM or Whirlpool, but for the overall economy the effect is small. Most investors seem to be missing the forest for the trees: It's the tax cuts that matter. All corporations are reaping the benefits from those tax cuts.

That — and the strong revenue growth — is why the markets have held up so well this year.