CORPORATE BEIGE BOOK: UPBEAT AS EXPECTED
Burt White Chief Investment Officer, LPL Financial | Jeffrey Buchbinder, CFA Market Strategist, LPL Financial
The LPL Research Corporate Beige Book Barometer — our measure of corporate sentiment that reflects an analysis of earnings conference call transcripts — shows that companies remained generally upbeat during the second quarter earnings season. This is hardly a surprising outcome, given actual earnings results were very good and estimates of future earnings held up relatively well as companies provided forward-looking guidance. Earnings call transcripts analyzed took place starting in mid-July extending through the third week of August.
OUTSTANDING BOTTOM LINE
Corporate sentiment remained very optimistic during the second quarter based on our tally of positive and negative words in earnings conference call transcripts. Although we observed a drop in overall directional language (the total of strong and weak words), the differential remains positive [Figure 1], while the ratio of positive-to-negative words has been on a steady climb since the end of the Chinese currency crisis in spring 2016 [Figure 2]. Specifically, from the third quarter of 2016 to the second quarter of 2017, the ratio of strong-to-weak words rose steadily from 2.6 to 6.8. The drop in directional language may simply reflect stability in the macro environment. The improvement in management sentiment is encouraging and consistent with the strong earnings season. Corporate profits are growing at a solid, double-digit pace, and we believe the positive tone from management teams supports our outlook for further earnings gains...