11.27.14: Consensus Looking for 10% SP 500 Earnings Growth in 2015

November 27, 2014 at 8:43 pm | Posted in S&P 500, SP 500 forecast(s) | Leave a comment

There is much to be thankful for with the SP 500 +14% YTD.

Crude oil is falling $5 or 6.5% as this is being written on Thanksgiving Day, based on OPEC’s announcement that they wont be restraining crude supply.

Makes me wonder about all this nascent US crude oil production and the job growth it is driving.  Is the sudden oil price drop the reason weekly jobless claims have started rising again ?

Last year at this time, here was our 2nd pass at the combination of projected 2014 SP 500 EPS growth and “p.e expansion”.

For all practical purposes, 2013 EPS for the SP 500 was roughly $110, (includes the q3 ’13 JP Morgan charge) and so far in 2014, the bottom-up full-year EPS estimate as of last week is roughly $118 (and again this includes the Bank of America and Citi charges, and thus is not a clean number).

The point is that we are looking at roughly 7.5% EPS growth in 2014 for the key benchmark, with modest p.e expansion, at least thus far. 14% is still a very good year and that implies that we are flat for December, ’14. Let’s say the bottom-up estimate for 2014 is roughly $118 on April 1 ’15 (with all of q4 ’14 having then been fully reported).

Today, the bottom-up estimate for 2015 is expected to be roughly $130, or 10% growth expected next year.

  • In 2013, the SP 500 rose 32% on roughly 7.5% – 8.5% SP 500 earnings growth.
  • In 2014, the SP 500 is on track to rise about 14% (so far) on 7.5% – 8% SP 500 earnings growth.
  • In 2015, (using the latest estimates), the SP 500 earnings growth is expected around 10%.

The question remains, how much p.e. expansion (or contraction) can be expected next year ?

I was actually looking for a 0% – 5% return for the SP 500 in 2015, but the fact is that the drop in the price of crude oil changes and muddies the forecast quite a bit.

How much do Industrial’s benefit from a drop in crude oil ?

How much does the consumer – still 2/3rd’s of GDP – benefit from a drop in the price of gasoline ?

The reason for my skepticism for 2015 was all the resounding bullishness I was hearing: “year that ends in 5″, “3rd year of Presidential cycle”, etc. etc. However the drop in crude oil changes things.

4th quarter ’14 earnings, which start getting reported in 6 weeks, will give a good feel for which sectors are getting the “crude decline” bump in estimates.

P/E expansion is the critical element to bull markets. Earnings growth is hugely important but the multiple assigned to that growth is always the question mark.

It was 2011, where we saw a 2.11% return on the SP 500, and yet SP 500 earnings growth that year was 15%. That was the last year of p.e contraction in recent memory.

Based on early revisions for full-year 2015, Financial’s will be one of the top sectors next year.

Remember, we really wont know complete 2014 earnings until around mid-February ’15, so this is all subject to revision.

Since this is being written on Thanksgiving Day, I wanted to say “thank you” to all my clients, and readers. I also wanted to express my condolences to Jim Cramer on the loss of his Dad. Loved the article he wrote about his Dad on TheStreet. I wrote for TheStreet for almost 10 years, and still benefit every day from the relationships that I formed from the site, including guys like Gary Morrow, Jeff Miller, Norm Conley, Vitaliy K, etc. I also got to meet Herb Greenberg and talk to Herb at length about growth stocks, and I met Jim at the same hedge fund conference in Miami, which I thought was in 2001 – 2002. I’m sure there are millions of guys (and women) out there like me that practice our trade as sole practitioners or small shops because we love the business and love the client relationship (as trying as that can be sometimes), and I always felt fortunate to be a part of that big Street.com group and get other opinions and perspectives. Since then, Todd Harrison, Bob Lang and many others have become friends and their help and guidance is greatly appreciated.

But mostly, today, a big “thank you” to clients. If it wasn’t for them, I wouldn’t get the opportunity to do the work I want to do.

Thank you,

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

11.25.14: Interesting Articles from Thoughtful Bloggers

November 26, 2014 at 1:59 am | Posted in Apple (AAPL), Weekend Link Fest, XOM | Leave a comment

Jeff Miller writes his weekly ‘Weighing the Week Ahead” (WTWA) column, for Seeking Alpha and his clients, which is always a must read. Jeff occasionally includes Fundmentalis.com in his weekly missive, but even if he didn’t, it is a must-read every week. I seriously think it is one of the most widely-read columns on Seeking Alpha every Sunday for good reason, www.seekingalpha.com’s Weekly Macro View and Economics blogs.

In our Weekly Earnings Update, it was noted that q3 ’14 SP 500 earnings actually look very strong, although Energy and Basic Materials will see significantly lower earnings growth in q4 ’14, and q4 ’14 earnings growth for the key benchmark is looking pretty robust too, despite both those sector’s impact on SP 500 earnings. The one interesting metric that jumped out at me after crunching the full-year 2014 numbers, is that despite the 30% drop in crude oil, the Energy sector is still not the sector with the lowest expected earnings growth rate for full-year 2014: that distinction belongs to Consumer Staples, but assumes that Energy estimates likely wont fall further in q4 ’14.

Josh Brown picks out his most popular or insightful thoughts from his The ReformedBroker (TRB) blog this week.

If there was one guy’s work that I would want to read on a desert island, despite all the talent on Wall Street, I think it would be Ryan Detrick’s stuff. The fact that Ry is a Xavier grad is just a bonus. Very intelligent guy, and very likable too. People love him. (Complete opposite of me. )

From Bob Brinker’s feed: good piece on no OPEC output cut on Thursday, and also from Brinker’s feed, a CNBC clip on Russia’s inability to cut their supply (read the article to see the link to Russia supply). Energy names could be volatile Friday, on light post-holiday volume. Some energy names like XOM and CVX are actually overbought. My own opinion is that crude gets to $60 before it bottoms, probably in the first half of 2015.

Treasuries look set to rally from here. Man, this is wearisome. I should just give up and buy the TLT.

@Ukarlewitz on Real Final Sales for 3rd quarter.

Another Fat Pitch (@ukarlewitz) article on low interest rates causing higher stock prices, NOT. I have this argument constantly with my Libertarian friends, supporters of Peter Schiff and all the gold bugs, who think hyperinflation is right around the corner. It just doesn’t stop… Wesbury wrote recently that the low interest rates have just caused bank’s excess reserves to increase.

From @FMInvesting or Fundamental Momentum blogger. This article has me worried since I am long the UUP, and have been for a few months. Would love a pullback to the $22 area.

Just finished Tim Geithner’s “Stress Test”. Pretty good. Fed President’s Fisher and Lacker don’t come across very well. The press today never pushes them on the fact, particularly Fisher (I think) that he wanted what Geithner called Old Testament style punishment for the banks as late as late 2007, early 2008. He is still a hard money guy today I believe, calling for higher rates. I never want to live through a market period like that again. I’m still dealing with it.

On my technical software, I have 518 charts. Can’t find one single equity position that is oversold amongst my major sectors and holdings. EVERYTHING is overbought. Even gold and silver have bounced a little.

So today I tweeted that with AAPL’s $700 billion market cap, and a $15 trillion US economy, AAPL’s market cap is now officially 4.67% of the US economy. Wow…

Happy Thanksgiving to all. I’ll be out with my first 2015 earnings pass probably on Thursday. The crushing in Energy and commodities has moved the numbers some.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager


11.21.14: SP 500 Weekly Earnings Update: Q3 ’14 Earnings Were Strong; Q4 ’14 Will Also Be Very Healthy (Despite Energy)

November 22, 2014 at 3:13 am | Posted in BAC, Basic Materials, Earnings, Earnings estimate revisions, Energy sector, Fwd 4-qtr growth rate (SP 500), S&P 500, Sector Earnings Growth Estimates, Weekly Earnings Update | Leave a comment

Per Thomson Reuters, the “forward 4-quarter” estimate this week fell slightly to $126.48 from last week’s $126.64.

The metrics as of 11/21/14’s close:

SP 500: 2,063.50

P.E ratio: 16.3(x)

PEG ratio: 2.15(x)

SP 500 Earnings Yield: 6.13% down from last week’s 6.21%, thanks to 1.16% rally in the SP 500 this week.

Forward 4-qtr growth rate: the y/y change in the forward 4-qtr growth rate ticked up this past week to 7.58% from last week’s 7.54%.

Analysis / commentary: Thomson is now putting the SP 500’s q3 ’14 earnings growth rate at +11.2% (486 of SP 500 have reported q3 ’14) if the Bank of America charge is excluded. JP Morgan’s year-over-year easier compare is in q3 ’14 so the +11% isn’t a pure number, but that is still one of the better quarters of operating earnings growth for the benchmark in some time. (I’ll try and get an adjusted operating number for q3 ’14 this week.)

As was noted last week, current q4 ’14 SP 500 earnings growth expectations is expecting 7% growth as of 11/21/14, which given the drop in Energy and Basic Materials, is still a very strong quarter expected for q4 ’14, and we still have another 6 weeks of likely downward revisions ahead of us. My guess is – by early January ’15 – the y/y growth estimate for q4 ’14 will be around 5% – 5.5%, and then we’ll see the upward revisions after q4 ’14 earnings start getting reported around January 10, ’14.

 Full-year 2014 SP 500 Earnings Growth Still Looking Pretty Strong:

With basically all of the SP 500 having reported q3 ’14 earnings, here is the change in full-year 2014 expected earnings growth by sector since July 1 ’14 (ranked highest to lowest):

Health Care: +16%, +11.9%; ( no surprise here)

Telecom: +15.3%, +15.9%

Technology: +10.9%, +10.4% (Apple’s calendar q3 ’14 was strong – really helped tech.)

Industrials: +10%, +8.8%

Utilities: +8.1%, +7.0%

SP 500: +8.1%, +9%

Basic Mat: +7.2%, +8.6%

Cons Disc: +5.9%, +8.6%

Financials: +4.2%, +6.6% (So may charges, hard to get a feel for operating earnings)

Energy: +4.2%, +9.4%

Cons Spls: +4.1%, +5.9%

One of the reasons I go through this exercise of analyzing the sectors from different timeframes is to simply see what jumps out; despite the drop in crude oil prices, Energy is still not the sector with the slowest expected earnings growth for full year 2014. That title is held by Consumer Staples. I would not have expected that.

Since July 1 ’14, Health Care, Technology, Industrials, and Utilities have seen upward revisions to full-year 2014 expected earnings growth.

There look to be some sector positives for 2015 as well, which we will be out with early next week.

Thanks for reading,

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager


11.20.14: Bond Market Update: Municipals outperformed Corporates Handily in 2014

November 20, 2014 at 9:52 pm | Posted in Asset allocation, Bond Funds, Bond Market Liquidity, Bond Market(s), MUB, Municipal Bond market, Municipal High Yield, Uncategorized | Leave a comment

We’ve had a tougher year in our balanced and fixed income accounts, mainly because like the 99% of the other money managers in the universe of money management, we thought interest rates would rise again this year, (sentiment should have been a huge tell at this time last year) and they didn’t.

Given the 30 – 35 year lows in interest rates, we’ve maintained a position in the TBF, or the unlevered Treasury short position.

However, the one thing we’ve done right this year, even in tax-deferred accounts like IRA’s and such, is that we’ve maintained a nice weighting in municipal bonds, whether through two closed-end funds we like to use ( Nuveen’s NUV, and Blackrock’s MEN), but also through a position in John Miller of Nuveen’s High Yield Muni Fund, as well as the HYD or the Barclay’s Market Vector High Yield Muni ETF.

We’ve been out of taxable high yield for some time, although we’ve traded the HYG for short periods.

My own opinion is that the bond markets this year have been far harder to navigate than the stock markets.

Here is a quick rundown of performance of some of the various fixed income markets:

The first column is year-to-date (YTD) return, and the 2nd column is 1-year return:

HYG:+2.83%, +3.86% (iShares taxable high yield ETF)

HYD: +13.74%, +12.66% (Barclay’s High Yield Muni ETF)

AGG:+5.04%, +4.61% (Barclay’s Aggregate, the bond market equivalent of SP 500)

MUB: +8%, +7.47% (iShares National Muni Bond ETF)

Here are how some of our individual muni vehicles did:

NUV: +9.42%, +11.2%

MEN: +15.78%, +19.70%

HYMB: +15.71%, +14.36% (Nuveen SPRD High Yield Muni Bond ETF, as proxy for John Miller’s Nuveen High Yield Muni open-end fund)

There is a lot of sectors we haven’t covered like TIPS, and Mortgages (MBS) and Preferred Stock (PFD), but checking some Bespoke data from their Wednesday night Fixed Income Weekly, TIPS and MBS are up 4% – 5% YTD.

The big disappointment for 2014 is probably taxable high yield, and a lot of that is probably Energy-related given Energy’s weight in the high yield benchmarks.

My own rationale for the muni outperformance is that 2013’s Taper announcement coincided with the Detroit bankruptcy in August – September of ’13, and the market just got hammered. While Puerto Rico is still an issue and will be in 2015, there has been time to clean out that paper. Plus state finances have improved, as have municipalities ability to refi existing debt. The Puerto Rice Electric Power’s (PREPA’s ?) seem to be on a lot of radars, as they first to default, possibly as early as Spring ’15.

We wrote about the muni closed-end fund discounts way back here, before anyone was noticing. (Actually, after re-reading the piece from August ’13, it looks like there was some press on the closed-end fund discounts.)

2015 could be a different story.

No question, Energy’s woes and general liquidity issues hampered the taxable fixed income market in 2014.

We even bought John Miller’s Nuveen High Yield Muni Fund for IRA’s and pension accounts, given at one point during the summer, the fund’s current yield was higher than the HYG current yield.

We have no early thoughts on 2015 in terms of bond sectors or asset class positioning. The current yields on NUV of 4.60% for investment grade muni’s and MEN’s 6.7% (with leverage) still look ok to me.  We’d be a quick seller of MEN should the short-end of the Treasury market start to turn.

Be forewarned: the big issue with municipal high yield is the very long duration of this market. A lot of this is 30-year paper or longer, and highly illiquid. Some of it will be called, or refi’ed for sure, but the duration is a lot higher than taxable-equivalent funds.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager




11.18.14: REIT’s Will Be 11th Sector of the SP 500

November 18, 2014 at 6:53 pm | Posted in Financial sector, REIT's | Leave a comment

Standard & Poor’s made a big announcement in the last few weeks: REIT’s will be broken out as a separate asset class beginning in September, 2015 and will constitute the 11th sector of the SP 500.

If you follow our regular weekly earnings work on this blog, you know the other 10 sectors by now.

Greg Harrison of Thomson Reuters provided me with the following spreadsheet this morning on the new sector and I was somewhat surprised at its small size. FC – REIT sector

The market cap will be less than 3% of the SP 500, which means that the REIT’s listed will be smaller than the Telco, Utilities, and Basic Materials sectors of the SP 500.

The REIT sector will be roughly 2.3% of the SP 500 when it is spun out, and is currently contained in the Financial sector of the SP 500.

Although  I haven’t owned it in a while for clients, given the popularity of the rental market in terms of multi-family housing, Equity Residential, which is a Sam Zell REIT, is our favorite. EQR’s CEO is a guy by the name of David Neithercut, who was EQR’s CFO in the early 1990’s, when a lot of the REIT’s had just come public, and I was looking at REIT’s from the debt or credit side of the capital markets.

Sam Zell timed the market perfectly in late 2006, when he sold Equity Office to Blackstone, so Boston Properties (BXP) looks like it will be the only commercial real estate or office property REIT in the index.

I got to know some of the retail REIT’s like Kilmco and others as well in the early 1990’s, although you would think mall properties are another sector being punished or pressured by Amazon. (Long AMZN).

Kimco (KIM) is (or was back then) considered to be a very good operator.

To my knowledge, there isn’t a lot of information being disseminated on the new sector, so Fundamentalis readers have gotten an early look.

Hope this helps.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager



11.15.14: SP 500 Weekly Earnings Update: q4 ’14 SP 500 Expected Earnings Growth Starts to Stabilize

November 15, 2014 at 7:59 pm | Posted in Sector Earnings Growth Estimates, Weekly Earnings Update | Leave a comment

Per Thomson Reuters’ “This Week in Earnings” the forward 4-quarter earnings estimate for the SP 500 fell this week to $126.64 from last week’s $126.77.

P.e ratio: 16(x)

PEG ratio: 2.14(x)

Earnings yield: 6.21%

Year-over-year (y/y) growth rate of the forward estimate: +7.54%, versus last week’s +7.63% or a 9 basis point drop.

Analysis / commentary: the one metric at caught my eye this morning as I read through the weekend earnings research at Saturday breakfast, is that the expected earnings growth for q4 ’14 for the SP 500 as a whole was 7.3% as of Friday’s “This Week in Earnings” report, versus 7.6% last week, which tells me that the Energy and Basic Materials negative earnings revisions could be coming to an end, at least for now.

With 450 of the SP 500 having reported q3 ’14 earnings, the results have actually been pretty positive: actual earnings growth for q3 ’14 per Thomson Reuters is +9.8%, but that includes what is widely-regarded as the last good quarters of Energy and Basic Material’s earnings growth, which was +10.4% for Energy, and +20.7% for Basic Materials (compared to the -7.9% and -0.3% for q4 ’14, respectively.)

Here is how the 10 sectors of the SP 500 expected q4 ’14 earnings growth have changed in the last week:

Consumer Disc: +8.8%, +9.6% (80 basis point decline)

Consumer Spls: +0.9%, +1.4% ( 50 basis point decline)

Energy: -7.9%, -6.9% (100 basis point decline)

Financl’s: +8.6%, +8.6% (no change, and somewhat puzzling given the charges that are circulating regarding the forex scandal);

Hlth Care: +18.1%, +17.9% ( another weekly increase)

Industrials: +11.2%, +11.2% (no change, should be beneficiary of falling crude prices)

Basic Materials: -0.3%, +0.1% (pretty dramatic change from q3 ’14’s +20% growth)

Technology: +8.5%, +8.6%

Telco: +19.6, +19.9%

Utilities: +9.8%, +9.3% (another increase)

SP 500: +7.3%, +7.6% (30 basis point decline)

My own opinion is that we are starting to see estimates stabilize for q4 ’14 after the Energy and Basic Materials shock.

2015’s expected SP 500 earnings growth fell from +10.3 to +10.2% in the last week, not really worth mentioning, but we keep track of the changes in expected earnings growth across multiple timeframes.

It is just my opinion, but SP 500 earnings continue to be a bright spot: despite ugly revisions for Energy and Basic Mat for the 4th quarter, consensus estimates are still looking for +7.3% growth in q4 ’14. That will surely come down before q4 ’14 earnings start to get reported in January, ’15, but we should end up with a +5% growth rate just as earnings start. That is a plus, particularly with the pressure on the Energy sector.

We saw a lot of high profile commentators go negative on q3 ’14 earnings starting early, September ’14 and we didn’t as you can see here.

SP 500 earnings growth is still very much a positive aspect to this market. Don’t bail because of earnings.




11.8.14: SP 500 Revenue Growth, 3rd and 4th Quarters

November 8, 2014 at 10:45 pm | Posted in S&P 500, SP 500 Revenue Growth | Leave a comment

We occasionally post an update to SP 500 revenue growth, which we are doing tonight again here (FCSP500revgro(qtrly)).

As you can see SP 500 revenue growth for q3 ’14 is coming in slightly better for the 3rd quarter with almost 80% of the SP 500 having reported their 3rd quarter, 2014 results.

The two sectors with upside in terms of revenue growth are Healthcare (no surprise, a lot of which is biotech), and Technology.

In terms of the 4th quarter expectations, Thomson Reuters doesn’t give any look forward for revenues as they do with earnings, but Factset does, so here is what Factset is showing for the changes in q4 ’14 revenue expectations, from Sept 30th to Friday, November 7th (first column of data), as ranked from highest to lowest expected revenue growth:

Health Care: +9.2%, vs the +8.8% expected of 9/30/14

Technology: +6%, vs +7.2%

Telecom: +4%, vs +4.2%

Consumer Disc: +3.5%, vs +4.7%

Consumer Spls: +3.2%, vs +3.8%

Industrials: +2.8%, +3.3%

Ute’s: +2.5%, vs +0.8%

Fincl’s: +2.3%, +2.9%

SP 500: +2.2%, vs +3.8%

Basic Materials: -0.6%, vs +1.9%

Energy: -9%, vs. -1.7%

Only Healthcare has seen upward revisions to revenue estimates for q4 ’14. What a shocker that Basic Materials and Energy are at the bottom of the list. Every sector besides Healthcare has seen revenue growth estimates decline for q4 ’14.

My guess is, as was the case with yesterday’s Weekly Earnings Update, (see November 7th post), is that Energy is having a significant drag on q4 ’14 SP 500 revenue estimates as well, not just SP 500 earnings estimates.

The expected revenue decline of 9% within the Energy sector for q4 ’14 as of this weekend, is 400% greater than the expected revenue decline as of September 30th’s expected -1.7% and it could still get worse.


11.7.14: SP 500 Weekly Earnings Update: Energy and Basic Material Downward Revisions Exerting Pressure on Forward Estimates

November 8, 2014 at 1:06 am | Posted in BAC, Basic Materials, Earnings, Earnings estimate revisions, Energy sector, Fwd 4-qtr growth rate (SP 500), Weekend Link Fest | Leave a comment

Per Thomson Reuters, This Week in Earnings, the forward 4-quarter estimate for the SP 500 closed this week at $126.77, versus last week’s $127.04.

After the 70 bp increase in the SP 500 this week, the p.e ratio using the forward estimate is 16(x), slightly higher than the 5 and 10-year average p.e on the SP 500, per Factset.

PEG ratio: 2.10(x), a sharp jump from the 1.6(x) – 1.7(x) range we saw over the summer and for most of 2014, and you’ll see why in a minute.

Earnings yield: 6.24%

The year-over-year change in the forward growth rate fell to 7.63% this week, from last week’s 7.87%.

Analysis / commentary: Energy is 12% of the SP 500 by market cap weight, while Basic Materials is 3%, thus if you take the two sectors together, 15% of the SP 500 is seeing heavy downward revisions of forward earnings estimates.

Energy: the 5-week change in earnings growth for the Energy sector for just q4 ’14 is a whopping 1,350 basis points negative, from an expected +6.6% on October 1, to -6.9% as of November 7th;

Energy: for full-year 2015, the Energy sector’s expected earnings growth has declined a negative 870 basis points, from +6.9% as of October 1 to -1.8% as of November 7th;

Basic Materials: the 5-week change in earnings growth for the Basic Materials sector for just q4 ’14 is a negative 990 basis points, from +10% as of October 1, to +0.1% as of November 7th;

Basic Materials: for full-year 2015, the Basic Mat’s expected earnings growth has declined from +19.1% as of October 1 to +16% as of November 7th;

For just the 4th quarter alone, Energy – according to my math – is having a 160 bp drag on the SP 500 as a whole. Thus the current 7.6% expected growth rate for q4 ’14 as of November 7th, should be closer to 9.2%.

With Basic Materials 990 basis point drag for q4 ’14, with just a 3% market cap weight, the drag for just the Basic Mat sector looks to be pretty miniscule at les than 1/2 of 1%, but add the two sector together and you get almost a 200 bp or 2% drag on the SP 500 for q4 ’14.

Thus, 53% of the drop in the q4 ’14 expected growth rate, for the SP 500 can be explained by the 190 basis point drag of Energy and Basic Materials.


  • q4 ’14 expected earnings growth for SP 500 as of October 1: +11.2%
  • q4 ’14 expected earnings growth for SP 500 as of Nov 7, ’14: +7.6%
  • Total Difference since October 1 ’14: 360 basis point decline
  • Energy and Basic Mat revisions: estimated 190 basis decline
  • Remaining 8 sectors of SP 500: 170 basis point decline

The additional announcements this week on Bank of America, and the continued onslaught of charges and special charges at the big banks, complicates the earnings picture even more. (Long BAC)

 2015 expected SP 500 earnings growth: Usually at this time of the 4th quarter, I start looking for sectors that are remaining stable in the face of the typical downward revisions. Usually, 2015 SP 500 earnings growth isn’t given full freight, until q4 ’14 earnings are released and management’s give their best 2015 guidance on the January and February conference calls.

I went back and looked at 2014’s expected earnings growth for the SP 500 at this time last year: Between October 1 ’13 and January 31 ’14, the expected 2014 earnings growth for the SP 500 declined just 160 basis points in 3 months. Already, since October 1, 2014, the expected 2015 earnings growth for the SP 500 has declined 210 basis points. Energy’s expected decline for full-year ’15 (see above) is 870 bp’s alone.

What worries me is that despite Energy’s pressure for 2015, not all of the decline can be explained by Energy.

Now that Energy’s revisions are baked into the forward estimates, I would like to see that “forward 4-quarter earnings growth” rate for the SP 500 start to increase again.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager


11.5.14: How Big of an Impact is Energy Having on 4th quarter SP 500 Earnings Growth ?

November 5, 2014 at 1:50 pm | Posted in Energy sector, S&P 500, Sector Earnings Growth Estimates | Leave a comment

Per Greg Harrison of Thomson Reuters, as of 11/4/14, the SP 500’s q4 ’14 year-over-year earnings growth for the key benchmark was projected to be 7.8%.

If the Energy sector was just flat for q4 ’14, (i.e. no growth), the growth rate for the SP 500 would be +8.6%, so Energy, assuming no growth, is a drag of 80 basis points currently.

Now, the energy sector isn’t expected to be flat, but is currently expected to see y/y earnings decline of -6.8%.

The point is – as you can imagine – is that Energy is a significant drag on the SP 500 earnings as a whole.

As we noted in the Weekly Earnings Update, the “forward 4-quarter” growth rate of the SP 500 is starting to come down, not insignificantly.

Healthcare, Industrials, Financials and Technology are the sectors to play in lieu of Energy.

Our own forecast given the numbers, is that Energy estimates will likely bottom in q4 ’14, from our October 25th blog. Modeling out the numbers got us to that conclusion. Once we move trough the 2nd half of 2015, compares get easier.

Boone Pickens noted the he thought Energy would bottom in q1 ’15, in a CNBC interview yesterday, albeit he likely arrived at the conclusion in a different manner.

Give the Energy sector time. Values will present themselves.

The estimates and numbers change every day. We’ll have more on the changes in estimates this weekend.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager


11.3.14: Change in q4 ’14 Expected Earnings Growth since October 1

November 4, 2014 at 1:31 am | Posted in Sector Earnings Growth Estimates | Leave a comment

Here is the change in q4 ’14’s expected earnings growth by sector since October 1 ’14. Most of this was on the spreadsheet from this weekend, but not all.

(First column is expected growth as of 10/31, 2nd column is expected growth as of 10/1)

Cons Disc: +10.1%, +13.9%

Cons Spls: +2.1%, +4.5%

Energy: -5.9%, +6.6% (whopping change of 1,259 bp drop)

Fincl’s: +8.7%, +10.4%

Hlth Care: +17.8%, +19.4%

Industrials: +11.3%, +12.4%

Basic Mat: +2.1%, +10% (In q3’14, Basic Mat will be +20%, so we are seeing a big drop in q4. The commodity pain continues)

Technology: +9.2%, +10.5%

Telco: +18.4%, +23.8%

Utilities: +8.1., +7.7%

SP 500: +8%, +11.2%

Only Utilities has seen an increase in expected growth for q4 ’14 since October 1. Two weeks ago we wrote that Technology was showing an improvement but that has evaporated. With the criminal probe at JP Morgan, announced tonight, Financials might get whacked again. Ex Energy, the 4th quarter would be looking pretty solid. A 1,250 basis point drop in a sector that is 12% of the SP 500’s market cap implies a 1.5% reduction in the SP 500, which means that the SP 500 expected growth would be closer to 9.5% versus today’s 8%.

Data Source: Thomson Reuters

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