Optimism on Mother's Day
As we prepare to celebrate Mother’s Day, the first quarter earnings season is wrapping up and on the surface it may not seem like one that would make mom proud. However, there is reason to be optimistic that earnings growth will bounce back, providing a supportive back​drop for equities.​​​

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  • ​While this quarter’s earnings growth appears very weak, some idiosyncratic issues are weighing on growth, including weak semiconductor and energy earnings, which may prove transitory. As the semiconductor cycle improves and higher oil prices flow through oil & gas company financial statements, overall earnings growth should improve by the end of the year, particularly with some certainty on global trade.

  • With 78% of S&P 500 companies having reported 1Q19 earnings, over three quarters have beat estimates with the best sectors in that regard being Information Technology (89%) and Health Care (85%). Those two growth-focused sectors are also leading in the percent of companies beating revenue estimates.

  • Despite weak absolute EPS growth, there are some positive signs including a strong magnitude of earnings surprise (5.6% vs. the 4.8% five-year average) and forward-quarter estimates holding up better than in the past (2Q19 estimates were down only -1.0% in April vs. the five-year average of -1.7%).

  • If these data points indicate improving earnings growth going forward as company analysts forecast, investors may be able to put 1Q19 earnings season in the rearview mirror and look forward to improving equity fundamentals going forward.

The views expressed are the views of Fred Alger Management, Inc. as of May 2019. These views are subject to change at any time and they do not guarantee the future performance of the markets, any security or any funds managed by Fred Alger Management, Inc. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.

This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund shares.

Risk Disclosure: ​Investing in the stock market involves gains and losses and may not be suitable for all investors. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Many technology companies have limited operating histories and prices of these companies’ securities have historically been more volatile than other securities, especially over the short term. Technology companies may also face increased competition, government regulation, and risk of obsolescence due to progress in technological developments.​

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