We seem to be back in a period of worry and concern. Greece was in the headlines for the last few months. After much posturing by its new government to not cave in to European pressure to cut pension benefits and abide by more stringent austerity measures, they ended up doing exactly that. I suppose when it came down to the wire, Greece did not want to be expelled from the European Union and the use of the Euro as its currency.

China’s economy is growing, but not quite as fast as it was thought just a few months ago. Apple, BMW, Ford and other companies are reporting slowing sales in China. The economy in China is still growing but at a slower pace. This perceived deceleration in China has affected almost all commodity prices downward globally. Gold, copper, minerals have all been under pressure, especially energy. While lower energy prices are good for consumers (airlines, autos, etc.), it is not for the producers and that is why we have seen weakness in the shares of companies like Exxon, Chevron, EOG, SLB, etc. Many investors are wondering, “When will energy prices hit bottom”? No one knows the exact moment that will occur, but it is widely known that the oil industry had made large cuts in exploration and production and at some point it seems obvious that this imbalance will swing the price pendulum the other way.

Amazingly, with thanks to effective cost controls, this corporate earnings season is turning out to be a good one! Investors were braced for an earnings decline in the second quarter of 2015, but instead we will end up with an earnings gain despite the drag from the oil downturn and strong US dollar. As of July 31^st, 70% of the S&P 500 companies have reported and the S&P 500 is on track to deliver a 2% increase when all results are in (same as the first quarter result), a good number when compared to recent trends. The earnings “beat rate” of 72% is five points above the first quarter of 2015 and six points above the three year average.

The second quarter’s earnings performance is particularly impressive when removing the energy sector’s expected nearly 60% year-over-year decline. Excluding energy, S&P 500 earnings growth is tracking 8-9%, an excellent growth rate, especially considering that the strong US dollar is also dragging down earnings, though not by quite as much as the expected 3-4%. Company results outside of the energy sector have been supported by improved global growth, lower energy costs and effective cost controls.

Although forward estimates have edged lower, LPL Research expects earnings to accelerate through the second half of the year. We hope summer is treating you well – Please do not hesitate to contact us with any investment questions you may have – Mark