The Corporate Beige Book
Jan 12, 2017 11:19AM ● Published by Neighbors Magazines
by Angelo R. Imbrogno
Corporate sentiment improved during the third quarter based on our analysis of earnings conference call transcripts for third quarter 2016 earnings season. We saw greater use of strong and positive words, whereas talk of recession was again virtually non-existent and the presidential election surprisingly garnered relatively little attention. Brexit-related commentary and fewer currency mentions suggest stability in the U.K., while oil and China continued to garner significant attention. We use earnings conference call transcripts to gauge overall sentiment of corporate management teams, much like we have done with the Federal Reserve’s (Fed) Beige Book to create our Beige Book Barometer.
For all the media attention on the U.S. presidential election, corporate executives spent surprisingly little time on the topic during third quarter conference calls. We found just 31 mentions of the election in the call transcripts we examined for Q3. A search for “Trump” and “Clinton” revealed even fewer mentions.
Corporate America ended its earnings drought in style in the third quarter of 2016, with S&P 500 earnings growing more than 4% year over year, a roughly 5% upside surprise to prior estimates (as of October 1, 2016). The results were consistent with our expectation for a continued rebound in the fourth quarter and in 2017.
The Corporate Beige Book suggests that corporate executives have become more confident in the macroeconomic outlook. The end of the earnings recession, which coincided with drags from oil and the dollar abating, and the market’s calm reception to Brexit likely provided reassurance. We believe third quarter results were strong enough to justify the improved tone and support our expectation for mid-to-high single digit earnings growth in 2017.
Angelo Imbrogno is president of Blue Diamond Wealth Management, Inc.
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