Portfolio Update

Solid Results, Strengthening Economy

With 479 of the 500 companies in the S&P 500 having reported fourth-quarter results, earnings season is drawing to a close.

Almost three-quarters of these companies bested the Bloomberg consensus estimate for earnings, while 62 percent exceeded revenue expectations–a significant improvement from the third quarter, when 53 percent of the S&P 500’s constituents beat on the top line.

These solid results won’t put to rest bearish claims that large companies have grown their profits by dint of aggressive cost-cutting measures, but they go a long way toward discrediting the argument. And the stronger-than-expected revenue growth supports our thesis that US economic growth will accelerate meaningfully this year.

As we explained in It’s Cold Outside: Buy the Dips, harsh winter weather has depressed car and home sales and hampered employment growth. Solid fourth-quarter earnings, coupled with positive commentary from many management teams, suggest the big chill has obfuscated encouraging underlying trends.