The Q2 earnings season has been impressive with both earnings and revenue growth rates exceeding expectations and outpacing the numbers in the past few quarters. Total earnings for the S&P 500 companies that have reported results so far are up 9% with a beat ratio of 65.6%, while revenues are up 4.6% with a revenue beat ratio of 60.6%.
Companies across a wide number of sectors have posted strong results beating analyst estimates. The estimate revision trend for Q3 is also not as bad as was seen in the previous quarters. In fact, the magnitude of Q3 negative revisions is the lowest in more than a year, suggesting modest improvement on the guidance front (read: 4 Ways to Play Earnings Growth with ETFs).
While there have been winners in many corners generating double-digit growth, the medical sector is clearly leading the way. This is especially true as the sector has been the major contributor to both earnings (+15.8%) and revenue (+12.4%) growth so far, crushing estimates and providing a solid outlook.
Earnings growth has more than doubled that of Q1 thanks to encouraging industry trends. Increased merger and acquisition activities, development of new drugs, expansion into emerging markets, ever-increasing health care spending, an aging population and the Affordable Care Act (often known as Obamacare) are fueling growth in the space.
In particular, earnings at Gilead Sciences (NASDAQ: GILD), Amgen (NASDAQ: AMGN), Pfizer (NYSE: PFE) and Merck (NYSE: MRK) have been inspiring, thereby becoming yardsticks for other stocks in the space. The stock prices have also been surging since their earnings release (read: Pharma ETFs in Focus on String of Earnings ...More...