(Drivebycuriosity) - The earnings season is in a full swing. To date, 44% of the companies in the S&P 500, the gauge for the US stock market, have reported actual results for the second quarter of 2019. 77% beat the earnings expectations of the analysts, report FacSet (factset). Together the reported company profits are 5.4% above the estimates.
The numbers show that the analysts are too pessimistic. Apparently they
underestimate the fact that there is a strong perpetual trend of rising
company earnings. The companies which are collected in the S&P 500
are getting more efficient & more productive over time -
thanks to learning processes and the technological progress. Companies
are learning organisms because they are managed by humans who are
continuously improving themselves and their companies. During the
recession 2008 companies had restructured and reduced costs
significantly in order to survive. Now they are more fit & more
efficient than before.
Company earnings are also boosted by automation. Since the early 18th
century (the first industrial revolution) the technological process has
been enabling companies to produce more goods & services with the
same amount of employees. More and better machines (robots) are doing
the work of people which translates into lower costs, higher profit
margins and climbing earnings.
It seems that this process is accelerating again and we are at the begin
of new industrial revolution. We are experiencing a rapid advance of
information technology, meaning combinations of computers, smartphones,
Internet and other digital systems. Software - which is increasingly
Internet connected and uses more and more the cloud (access to huge
external data centers) - organizes the whole business: Creating new
products, inducing machines to run more efficient, finding cheap
suppliers, manage customer relations and so on. Car producers and many
other manufacturers are increasingly using robots and similar machines
to reduce their costs. Companies are also beginning to use 3D-printers
to become more cost efficient and flexible.
Company profits are also boosted by the rise of the emerging markets.
China, India & Co. create additional markets. Therefore companies
can produce more which translates into shrinking average production
costs (economies of scale). Emerging markets also deliver cheap supplies
(most computers, tablets & smartphones are manufactured there)
which reduces the production costs further.
I believe that the learning process will continue and will translate
into a long term trend of fast rising company earnings, the engine of the
stock market rally.
Enjoy!
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