Q3 Earnings Season Final Check-In: Not Much to Complain About

With 94% of the market's companies having reported last quarter's numbers, the third quarter earnings season is all but over - what we've got isn't going to change much as the last 6% report (and they won't finish reporting until closer to the end of calendar Q4). Ergo, this will be our last look at the S&P 500's Q3, from an earnings perspective.

The almost-final tally? The S&P 500 earned $31.57 last quarter, which is just a penny less than the $31.58 it was on pace to report the last time we looked at the data on November 8th. It's also 10% better than the year-ago bottom line.

That said, it's also worth mentioning the 2018 outlooks were peeled back a bit.

With the new numbers and forecasts in hand, the S&P 500 is now valued at a trailing P/E of 21.8 and a forward-looking P/E of 18.5. Both are above long-term norms. (The pink arrows mark the Q3 data; click in the image to see the full-screen version.)

As was noted with the last analysis of third quarter numbers, the story of the market's earnings health as a whole is a story mostly about the energy sector's recovery, which in turn is a story about oil prices. On that front, matters are looking even better than thought just a few weeks ago. While Q3's per-share income for the S&P 500 Energy Sector Index is indeed going to be right around the $3.73 the pros were calling for a month ago, 2018's earnings outlook for the sector index were ratcheted considerably higher. That's the result of the surprisingly strong (and well supported) rebound in crude oil prices we discussed on the 21st. The sector is still richly valued, at a trailing P/E of 33.6. The forward-looking P/E of 24.9, though, is almost palatable given the sector's long-term average valuation in the mid to low teens.

That said -- and this is where it gets interesting -- when you remove the still-too-expensive energy stocks from the equation, the S&P 500 is valued at a reasonable trailing P/E of 19.5, and a similarly reasonable future P/E of 17.2. In other words, traders who are still buying have rightfully discounted the odd impact the energy sector has had on the market's broad valuation. Though other areas are still relatively rich, they're not expensive in light of the kind of economic growth we've seen for the past couple of quarters.

The palatable valuations and projected, likely growth won't stave off a short-term correction, as corrections are more often sparked be sentiment rather than fundamentals. The growth undertow will prevent a small stumble from becoming a large one though... meaning any dip is worth buying into.

It's also worth recognizing that any such dip may not materialize right away. As Price Headley told CNBC last week, and as the day-to-day annual average performance chart of the S&P 500 also suggested, the market is on pace to dish out the usual year-end bullishness in 2017. That bullishness generally carries over into and through January.

In other words, even though we're in a buy-on-the-dip environment where earnings are growing, we're not yet even in dip mode.