If you want a reason to be optimistic about the S&P 500 look no further than fourth-quarter earnings.
After falling for five consecutive quarters, S&P 500 earnings growth is back in the green.
It started last quarter. Third-quarter earnings grew 2.1% from the same period last year, a marginal victory on the chart but a big win for morale, breaking a five-quarter losing streak.
Fourth-quarter earnings show an improvement from there. As of February 10, 71% of S&P 500 companies had reported fourth-quarter results, according to FactSet Research.
From that group, earnings were up 5.0% from last year. This marks a strong reversal out of the earnings recession that began in 2015.
Looking forward, earnings are expected to accelerate throughout 2017.
Take a look at the earnings growth projections below.
This return to earnings growth is a powerful macro force that I expect to be supportive of the S&P 500 this year. History also tells me that companies delivering the best earnings surprises will do even better and benefit from one of Wall Street’s best-kept secrets.
The Post Earnings Announcement Drift (PEAD) is the tendency for a stock’s cumulative abnormal returns to drift in the direction of an earnings surprise for several weeks (or several months) following an earnings announcement.
Take a look at the chart of return distributions below.
This study demonstrates that companies beating earnings tend to outperform the S&P 500 in the weeks and months following a positive earnings surprise.
Today, I want to help you profit from this data. I have compiled a list of seven of the S&P’s best stocks now surging on earnings surprises from the fourth quarter. These companies are well-known global leaders. I am expecting the S&P 500 to have a strong up year in 2017. But I am expecting these companies to do even better. Take a look below.
|Company||Ticker||Positive Surprise (%)|
|Exxon Mobil Corporation||XOM||25.00|
|JPMorgan Chase & Co.||JPM||20.42|
|Priceline Group Inc||PCLN||8.94|
From the group I have chosen to highlight JPMorgan Chase & Co. (JPM) and Exxon Mobil Corporation (XOM) because they just delivered two of the best earnings surprises and are both on pace for big earnings growth in 2017.
Let’s take a closer look.