Earnings Analysis for Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), and Boeing Co (NYSE:BA)

The FOMC did what everyone wanted them to do; they didn't raise interest rates, and even though they signaled that interest rates would increase Wall Street rallied because they didn't increase interest rates at the yesterday's meeting as some had feared.  The market is in party mode, they are completely discounting many of the risks that exist, but we always need to look ahead and the intention of this article is to look ahead to earnings season.

Before I go there, the risks that exist can be summed up in a very simple statement.  Global stimulus efforts are exactly why this market rallied, it is exactly why the S&P 500 is at 25 times earnings, but global stimulus efforts are coming to an end, the United States is already prepared to tighten monetary policy again, which stifles economic growth, the ECB is not going to extend its bond buying program based on its latest meeting, and those are the major global stimulus influencers, but the bank of Japan is participating too.  Unfortunately, the bank of Japan is swinging wildly, reminding me of a cartoon where a baseball batter swings over and over again at a slow moving curve ball that he is unable to hit, until such time as he falls flat on his back.  My point is, global stimulus, that which has caused this asset bubble, is coming to an end and we all need to recognize it.

Now, the next focal point of this market will be earnings, so let's have a look at expectations.

Earnings expectations for this coming quarter are sky high, and they are sky high for the foreseeable future too.  Where past earnings expectations were low, the earnings expectations from this point forward are for robust growth.

To make this observation clear, I regularly update a chart on my website that defines the yearly growth rate for the earnings of the Dow Jones industrial average.  In this chart we can see that the trailing 12 month earnings growth rate for the Dow Jones industrial average has been declining steadily since the second quarter of 2014, but looking back it has been in a downward pattern since the beginning of QE2.  Expectations for next year, however, exceed 22%.  DJIA Growth Chart

Although earnings estimates for this year are still for a Y/Y contraction of 11.59%, the quarterly growth rate for Q3 is expected to be 10.2% better than Q2, suggesting robust recovery and growth in earnings for the Dow Jones industrial average starting immediately.

These lofty expectations are dominated by earnings growth expectations for three stocks in particular: Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), and Boeing Co (NYSE:BA).

  • Wall Street is expecting a 613% improvement in Boeing
  • Wall Street is expecting a 173% improvement in Chevron
  • Wall Street is expecting a 90% improvement in Exxon Mobil.

Unlike last time, the expectations for this earnings season are very high, and they come in association with very high valuation concerns and the end of global stimulus.