Earnings season review; Tech stocks remain the pillar of strength

Empirical Research Partners has published an analysis that examines the fourth-quarter earnings of S&P 500 constituents that finds that incremental margins on each new dollar of earnings was the key stand out story of the season. The frontrunner here of course was the tech sector, which they say produced 32% pre-tax incremental margins, six points above the rate earned on all sales, while the rest of the market put up just 3%. A rising tide maybe lifting all ships, with the tech sector continuing to propel the operating leverage of the market, Empirical note. Ultimately, the key takeaway from these earnings metrics is that the cash flow story for the US economy remains intact, with the combined free cash flow output of public companies and the consumer sector of the economy amounting to almost 12% of GDP, a near-record reading and one that explains the resilience of the equity market, Empirical concludes.