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:
But several sub-trends are apparent:
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.