12.21.14: Ranking SP 500 Sectors Strongest to Weakest in terms of 2015 Expected Earnings Growth

December 21, 2014 at 10:38 pm | Posted in Apple (AAPL), AT&T (T), Financial sector, Financials, Industrials, Sector Earnings Growth Estimates, SP 500 forecast(s), Technology | Leave a comment

Looking at the changes in 2015 expected earnings growth by sector since October 1 ’14, and as of December 19 ’14:

1.) Financials: +17.6%, +16.7% ( a slight increase in the last 11 weeks, which is better than the rest of the SP 500)

2.) Consumer Discretionary: +16.8%, +18% (still strong, but surprised revisions haven’t been better given drop in crude oil – homebuilders, auto’s could be a drag)

3.) Materials: +14.8%, +19.1% (Basic Mat seems to always start strong – having a tough q4 ’14 in terms of stock performance. This will go lower).

4.) Technology: +11.3%, +12.5% (Tech is our second favorite sector for ’15, after Financials).

5.) Health Care: +10.8%, +11.6% (Given ’14’s actual Health Care earnings growth for has doubled from 8% to 15.9%, thought ’15 expectations would be stronger)

6.) Industrials: +9.7%, +11.5% (have to think dollar impacting estimates in Industrials)

SP 500: +8.4%, +12.4%

7.) Consumer Staples: +6.8%, +9.0% (dollar will impact Staples for sure. Wild card for ’15, but odds are dollar remains strong in ’15)

8.) Telco: +5%, +6.5% (price war in wireless, long T as bond proxy in balanced and bond accounts given 5.5% yield – hiked dividend this last week too)

9.) Utilities: +2.5%, +2.8% ( stayed away given interest-rate sensitivity – bad call on my part)

10.) Energy: -20.4%, +6.9% ( a whopping 27% or 2700 basis point change in full-year ’15 earnings expectations for Energy sector. A lot of the stocks don’t reflect that earnings pessimism yet. q4’14 earnings for Energy will be WAY interesting)

Analysis / commentary: our favorite sector going into ’15 will be Financials, since the revisions are setting up just like they did in late 2012. Seeing a positive revision trend against negative revisions within the SP 500 as a whole is very positive. It bodes well for those of us that play both the absolute and relative performance and earnings game. I do like Technology, but I think AAPL will find it tougher and tougher to replicate ’14 returns given its market cap. I don’t know that I will sell AAPL, I just don’t think I will add to the position. Frankly, Id rather own Cisco here than AAPL. (More to come – by the way, readers should take all forecasts and opinions with skepticism. As a client once told me “opinions and forecasts are like vital body openings, i.e. everybody has one.”)

Many thanks for reading the blog in 2014. I’ll have more to post this week.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager



12.20.14: SP 500 Weekly Earnings Update: Energy Sector Earnings Estimates Took Another Hammering This Week

December 20, 2014 at 4:07 pm | Posted in Apple (AAPL), Crude oil / Energy, Financials, Technology | Leave a comment

Per Thomson Reuter’s This Week in  Earnings, the forward 4-quarter earnings estimate for the SP 500 fell $0.89 this week to $123.48, versus last week’s $124.37.

The p.e ratio on the forward estimate is 16.7(x).

The PEG ratio is now 2.94(x).

The earnings yield on the SP 500 is now below 6% for the first time since late 2004, early 2005, ending the week at 5.96%. The “earnings yield” is a obviously a function of the dollar earnings estimate on the SP 500 divided by the SP 500’s price. Still the earnings yield is at an extreme we haven’t seen in many years. I’ll qualify the extreme measure by saying that the decline in the Energy sector’s expected earnings is probably having an undue depressing impact on SP 500 earnings in general, but at the same I will note for readers that it will be important to watch the earnings yield when q4 ’14 earnings start getting reported in January ’15.

Finally, the year-over-year growth rate of the forward estimate has fallen to 5.71% from last week’s 6.38%, partially driven (you would think), by the drop in expected q4 ’14 Energy earnings growth this week, from last week’s -16.9%, to this week’s -19.2%. That is an additional 230 bp decline in the Energy sector’s expected earnings in just the last 5 days.

Analysis / commentary: Here is the change in the Energy sector’s expected earnings growth by quarter, over the next 4 quarters, over just the last week, from December 12th, through December 19th:

q4 ’14: -19.2% decline, versus last week’s -16.9% decline , for an additional 230 bp drop this week.

q1 ’15: -29.6% decline, versus last week’s -22.7% decline, for an additional 490 bp drop this week.

q2 ’15: -29% decline versus last week’s -21.7% decline, for an additional 730 bp drop this week.

q3 ’15: -23.4% decline versus last week’s -16.2% decline, for an additional 720 basis point drop this week.

For full-year 2015, as of Friday, December 19th, Energy sector growth is now expected at -20.4%, versus -13.7% as of December 12th, for an additional decline of 670 bp just this week alone.

The other aspect to the earnings hammering within the Energy sector is that the out quarters are now seeing sharp downward estimates. I suspect there was a little bit of denial in the late October – early November ’14 when T Boone and other major energy investors thought that crude oil might bounce back to $80 – $100 within 12 – 18 months. Crude still could return to those levels in that time period, but the continued drop in q3 ’15 to the low 20% y/y decline after crude oil started dropping late September ’14 is imparting important information.

In terms of easier Energy comp’s, the q4 ’15 expected Energy growth estimates and trends will tell us much as we roll through the first quarter of 2015’s earnings.

The Good News:

Health Care expected earnings growth for q4 ’14, rose between this week and last from 17.5% to 17.6%.

Technology expected earnings growth for q4 ’14 rose between this week and last from 8.7% to 8.9%.

Utilities expected earnings growth for q4 ’14 rose between this week and last from 9.9% to 11.2%.

Conclusion: The crushing of the Energy sector’s earnings growth is distorting the bigger picture within the SP 500. Stick to sectors like Financials, which has seen its full-year 2015 expected earnings growth increase this week from 17.5% to 17.6%, which doesn’t sound like much, but its far better than 2015’s expected earnings growth for the SP 500 as a whole of 8% – 10%, and the revisions are biased to the upside, during a period, when revisions are usually being taken lower.

Right now, I like Technology (ex-Apple) in 2015 and like Financials the best of all. (Long AAPL)

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager




12.18.14: 5th Correction now in 2014 – P.E Expansion Could Get Harder Going Forward

December 18, 2014 at 10:49 pm | Posted in Financial sector, Financials, Industrials, PE expansion / contraction, SP 500 corrections, SP 500 forecast(s), Technology | Leave a comment

Assuming that the Santa Claus rally started in earnest yesterday, we’ve just finished our 5th correction in the SP 500 in 2014, which is a pretty strong “change of character” for the market since the March, 2009 generational low for the SP 500.

Here is the spreadsheet we use to track SP 500 corrections: SP500corrections

  • The retail investor hasn’t seen a 20% correction since 2011.
  • We’ve now seen 5 of what I consider to be decent, pit-of-the-stomach-type corrections in 2014, which is a vastly different pattern than 2012, and 2013. 2013 we saw one correction of 7.50%.
  • Remembering, the late 1990’s and the vicious corrections we saw in 1997, 1998, and then March of 2000, I am wondering if these little mini sell-off’s aren’t unlike tremors before a major earthquake.
  • I do think the next 20% correction isn’t earning-related, but the Fed finally normalizing short-term interest rates. Taxable fixed income is getting harder and harder to find value – there is trillions of corporate credit money chasing nickels of spread.
  • Strictly an opinion, but I think it gets harder and harder for the SP 500 to generate “p.e expansion” and despite this rally into year-end 2014, I am growing more cautious on 2015.

I’m thinking now if we do 5% – 10% in the SP 500 next year, it would be a good year.

Very similar to 1994, however I said the same thing in late 2013.

Our favorite sector for 2015 is still Financials, with current (or plan to be overweight) Industrials and Technology in 2015, as well.

This could also the incoherent ramblings of an old man, that simply writes to clarify my own muddled thinking.

Still, 2014 is now different than the stability of the last few years.

Readers should always be sensitive to a change of character in the SP 500.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

12.14.14: Weekend Reading from Other Bloggers Worth a Look

December 15, 2014 at 12:42 am | Posted in AT&T (T), Crude oil / Energy, Energy sector, FDX, Japan and Nikkei, VZ, Yen | Leave a comment

Jon Najarian, from OptionMonster with a good read found on Twitter, on crude oil volatility or the OVX. With crude trading right through $60 on Friday, many pundits think $50 is the next stop. What intrigues me is that names like Schlumberger (SLB) and Exxon-Mobil (XOM) are not as technically broken as you might think. Now to be clear, my forte is fundamental analysis, so technical analysis isn’t a big strength, but XOM’s 50-month moving average is $87.27, while the stock closed Friday at $86.60. Schlumberger has still not broken the uptrend line off the March ’09 lows, AND is nowhere close to the 2012 summer lows near $60, when crude oil was priced much higher than it is today. The uptrend line for SLB is right in here at $80 or so, and with oil services leveraged to crude prices you would think the drillers, with the drop in rig count and presumably day rates, would just be getting slaughtered (more so than they are). Is that telling us something ? I have to say it for readers, I haven’t owned Energy in any material size for 3 – 4 years, so it has hurt clients in terms of performance at times, but I am now doing a LOT of company-specific research on the sector. I did own Halliburton (HAL) for a few years, but sold it this summer near $69 – $70 when it looked to be ready to roll over.

Jeff Miller with his weekly missive that is always a good read. Jeff’s weekly blog takes a while to get through and completely digest, but it is worth the time. Jeff’s conclusion seems pretty solid, but I wonder of the drop in crude triggers a global growth spurt that is basically what we’ve been looking for since the 2008 Great Global Recession ended.

My friend, Gary Morrow’s West Coast homie blog, This Week on Wall Street, which is a 2-for-1 special today, given that you can see Josh Brown’s link to the Barron’s Poll AND you can see Gary Morrow’s technical analysis of AT&T, of which we went long this week in client’s bond accounts, given T’s 5.50% investment-grade dividend yield. Here was our blog post on the T rationale, from this week. What wasn’t on the blog was T’s current “fixed-charge coverage” always found at the back of the 10-Q, which is 4.99(x) as of 9/30/14. There is a price war right amongst the cell phone carriers, started by T-Mobile and Sprint, but T has some room. We would buy VZ for clients, but lower, since VZ’s debt load after the Vodafone buyout is substantial.

Here is the Amazon link (www.amazon.com) to Alts Democratized, a book by Rob Martorama, CFA, and my former editor at the Street.com. Rob is a member of an advisor group in which I participate. Although I haven’t read it yet, I feel like the book will be instrumental in helping me better figure out where I want to put clients in the LiquidAlts universe. This is an emerging asset class, and Rob’s book is out front of the educational and understanding of the asset class.

Good piece from Bob Brinker’s blog. picking up a Stratfor link on the social and political fallout of lower oil prices.

Soberlook post caught my eye this week, particularly the T-Bill chart. A monetary experiment ?

Along with Jon Najarian, Norm Conley thinks crude oil might be due for a  bounce. On Jim Cramer’s Mad Money Friday night, Jim was discussing Fibonacci Queen’s Carolyn Barodyn’s key level of $55 – $56 ?

Bob Lang of Explosive Options and the Street.com weighs in on the 30 day vol / divided by 90 day vol, if I have it right. Getting close to a market turn

Another great chart from @ukarlewitz Urban Carmel on the 10-year Treasury yield extremes.

One final shameless plug for Trinity clients: I was long the YCS (ultrashort yen ETF) for some clients who could handle the risk, but sold around $86 – $87 after the snap election was announced. Yen trading near 117 tonight, down from 120. Like the YCS again near $80, even better at $77. Reversion trade. Being patient. Yen 120 – 125 is significant support.

FedEx earnings report this week is huge – listen for global economic update: Europe, Japan and China, Southeast Asia.

Looks like a lot of smart money is playing for an equity and Treasury yield reversal this week.

Be careful out there.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager




12.12.14: SP 500 Weekly Earnings Update: Pressure Continues on Earnings as Oil Sinks

December 13, 2014 at 1:24 am | Posted in FDX, NKE, ORCL, S&P 500, Weekly Earnings Update | Leave a comment

Per Thomson Reuter’s This Week in Earnings, the “forward 4-quarter” estimate fell this week to $124.37 from last week’s $125.36.

The p.e ratio on the forward estimate is now 16(x).

The PEG ratio is 2.52(x).

The “earnings yield” on the SP 500 is 6.21%.

The year-over-year growth rate of the forward estimate fell again to 6.38% from 7.18% last week.

Analysis / commentary: As someone who has CNBC / Bloomberg on all day (sometimes muted, sometimes not), it was tough to reconcile this week’s very bullish commentary about the $75 – $100 billion gasoline tax cut, a potentially renewed consumer, and the price action of the SP 500, which finished the week down 3.52%, and shook the confidence of those looking for the year-end rally.

Since the week ended October 17th, the growth rate of the SP 500 forward estimate has now fallen over 300 bp’s to 6.38% from 9.49%. Energy’s estimated q4 ’14 growth rate has fallen 2,350 bp’s or 23.5% from October 1 ’14 through December 12, 2014, which is accounting for a big percentage of the drag on q4 ’14 earnings.

Fed-Ex reports this week, and given FDX’s fuel costs as a percentage of their revenue – about 10% – makes me believe their fiscal 2015 guidance (ends May ’15) will be critical. FDX should see a HUGE tailwind from the drop in crude oil and fuel prices, but what they say about the volume and economies of the US and non-US economies will be critical.

Basically everyone is blaming any weakness on the drop in crude oil the last three months:

1.) Widening credit spreads, particularly in high yield are blamed on Energy’s weight in the high yield index, which is supposedly 15% or so.

2.) The drop in equity prices this week was blamed in the drop in crude as the “rapid flush” in oil prices was supposedly too far, too fast spooking investors;

3.) For me personally, and what no one I ask can seem to answer the question I’ve asked, is it seemed like the Bakken and Marcellus shale regions were the source of a lot of some US growth over the last 3 – 5 years. Just how many new jobs were from those regions, and how secure are those jobs now, and what impact does that have on employment since OPEC and the Saudi’s seem to be targeting exactly that production ?

4.) Jobless claims have stopped falling and seem to have steadied in the “just below” 300k area.

5.) Factset noted that per their data, th drop in the q4 ’14 SP 500 earnings estimate was due to Energy and Telco revisions. Verizon’s warning this week, was a bit of a surprise. There is a price war in the wireless carrier business, and supposedly consumers will benefit. For q4 ’14 the Telco sector earnings growth has fallen from an expected 23.8% on October 1 ’14 to 15.1% today. (No Verizon, but bought some AT&T.)

Seasonally, the market should be strong into the year-end, so this week’s price action was a big surprise. Granted the SP 500 and all but the Energy sector were overbought coming into Monday, but at any point over the last 2 years you could have said the same thing.

Energy’s earnings weight in the SP 500 is larger than its market cap weight, as was noted in this blog post yesterday.

Naturally after this week’s 3.5% drop in the SP 500, the 3.78% drop in the Dow 30 and the 2.66% decline in the Nasdaq, I wonder if this is more than Energy supply issues at work here.

Fed-Ex, (FDX), Oracle (ORCL) and Nike (NKE) all report this week, with November 30 quarter ends. I will be listening for linearity of demand during the quarter’s, particularly from FDX and NKE.

The underlying premise up till now is that Energy earnings decline are masking good growth in other sectors.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager



12.11.14: SP 500: Earnings Weight vs Market Cap Weight in Index

December 11, 2014 at 11:59 pm | Posted in Energy sector, Financial sector, S&P 500 | Leave a comment

Had to throw this spreadsheet up FC – marketcapvsearningswt (click on the link) to show readers the difference between a sector’s earnings weight, versus the same sector’s market cap weight.

The Energy sector’s earnings weight at present is a little over 11% versus Energy’s current market cap weight of 8%, which explains our recent headlines in the SP 500 Weekly Earnings Update, that state that we think Energy’s negative revisions are masking decent growth elsewhere in the SP 500.

Financials are the same as Energy too. The Financial sector earnings weight is heavier than Financials market cap weight, just not to the same degree.

The Energy sector has the biggest difference between the two weightings within the SP 500, although Financials are a close second.

Hopefully readers find this info insightful.

Thanks to Greg Harrison of Thomson Reuters for his prompt response to the question.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager


12.10.14: Is AT&T (T) Now a Bond Substitute ?

December 10, 2014 at 4:54 pm | Posted in AT&T (T), HYG, VZ | Leave a comment
Click to enlarge

Click to enlarge

AT&T (T), fell 3% yesterday on nearly 3(x) average volume, after Verizon (VZ) warned about increased churn and margin pressure in its wireless business, which promptly dropped VZ 4% on Tuesday on nearly 3.5(x) average volume.

A small position in VZ was sold on Tuesday (we’ll give it until the January ’15 earnings report to have another look at the fundamentals and guidance) but I also added some T for clients in both bond accounts and balanced accounts, given the current yield on T of 5.5%.

The hook was that when I look at the current yield on HYG, the iShares High Yield (junk bond) ETF, which is yielding 5.75% presently, the trade-off between an investment-grade credit dividend at 5.5% versus high-yield current income at 5.75% with energy exposure seems compelling.

Frankly, I’d rather own Telco dividend risk here, with T sporting an A3/A- credit rating from Moody’s and S&P (Moody’s has T on creditwatch negative) than below-investment grade credit risk, with the liquidity issues in the high yield bond market to boot.

If you look at T’s chart above, the stock is testing its uptrend line off the March, 2009 lows. The early 2014 lows for T was $31.74.

We would likely be out of the stock with a trade below $30 on heavy volume, or at the very least reconsidering the long position depending on what else is happening in the US stock market.

In terms of disclosure, I have long been an AT&T client, with home and work landlines, as well as T being my cell phone carrier as well as website host. However the price war started by T-Mobile and Sprint makes for a compelling value and pushes against T’s and VZ’s most profitable and growing business, i.e. the wireless biz.

Verizon took on a lot of debt with the Vodafone acquisition, resulting in VZ currently being rated Baa1/BBB+.

According to my internal spreadsheet(s), VZ sports $107 billion in long-term debt as of 9/30/14, while AT&T’s total long-term debt is $70 billion. T’s debt-to-capital is 28% while VZ’s is nearly 48%.

I would like for VZ to trade into the low $40’s before buying it back as a bond-proxy for clients.

This AT&T trade may be good for a  week, a month or 6 months. Right now I’d prefer to collect a 5.5% Telco dividend than a 5.75% high-yield ETF dividend.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager


12.6.14: Weekend Reading That Might Benefit Others

December 7, 2014 at 12:33 am | Posted in BA, Bond Funds, MSFT, UTX | Leave a comment

http://www.fa-mag.com/news/worst-returns-in-decades-hounding-active-stock-fund-managers-20074.html. This leadoff article details how tough a year it has been for active equity managers. Although I haven’t seen a fixed-income equivalent, I wonder how taxable bond managers are doing this year. With recurring liquidity issues and disparate volatility, you have to think the average active bond-fund manager might be struggling, too. In terms of how I am doing for clients in 2014, our equity performance as of 9/30/14 was mostly better-than-benchmark, although performance has softened since 9/30, and it also depends on the account too. To be frank, my taxable bond holdings this year have struggled, so using closed-end muni funds and an allocation to muni high yield has helped, and I even bought some muni CEF’s and funds for tax-deferred accounts when the yields were right (or close to it). I felt like the muni market was the place to be in 2014, from both a risk-adjusted an absolute return perspective, in terms of the bond market. I completely dodged the Energy collapse this year on the equity side of the ledger, but also didn’t own enough Healthcare, which is the best performing sector of the 10 primary sectors of the SP 500.

Greg Harmon, excellent technician that runs the Dragonfly Capital website, thinks MSFT is still a good-looking chart. Note the date that chart was posted. Rick Sherlund, the former Goldman Sachs “ax” on MSFT and current Nomura software analyst, came out in April ’13 when the ValueAct stake was announced and panned the stock at $26, but this week upgraded it at $48. That makes you cringe a little, but we’ve all been there. MSFT has been one of my top 5 holdings for clients the last 2 years, and is the #1 position by percentage weight as of 2014. (Long MSFT)

Dan Fitzpatrick, another technician I really like and get access to his free charts, was out with a note on UTX and LMT on Friday, December 5th. My United Technologies (UTX) and Boeing (BA) positions have had flat years within client accounts, but I also haven’t sold any for clients over the last 2 – 3 years. Fitz thinks a trade through $112 for UTX could see a quick run to $120. Undoubtedly the mid-term elections and the change in the Senate you would think would help the Defense sector, given the proclivity for the Republicans to be pro-defense and pro-defense spending. Boeing (BA) is actually down a bit on the year, after nearly doubling in 2013. After the October ’14 earnings report, consensus analyst expectations for BA per the Thomson Reuters data was for just 3% EPS growth and 4% revenue growth in 2015 for BA – that may be too conservative. (Long BA and UTX, looking for reasons to get longer too.)

Josh Brown, putting out his “best” of TheReformedBroker in one blog post this week. Bespoke sent out this graph on Thursday night, which was promptly sent around to clients as “food for thought” as to where client money might get allocated in 2015.

Ryan Detrick recently took a job as a portfolio manager with a firm in Cincinnati. He has left the dark side and can’t tweet anymore, so he will be missed. Who will fill the substantial breach ?

Barry Ritholtz, the other half of the Ritholtz Wealth Management duo (Josh being the other) with a good article on Friday’s jobs report.

Great graph from UrbanCarmel (ukarlewitz) from Twitter on “average hourly earnings” from FRED. Think this means far more to Fed than commodity inflation. Charlie Bilello, CMT, another great technician, on December seasonality.

From FundamentalMomentum’s (@FMInvesting) on the 2-year Treasury yield’s jump.  Even with a yield of 64 basis points, the 2-year Treasury is still negative from a “real rate of return” standpoint, with the core inflation rate at roughly 1.5% annually.

Timely article by Jeff Miller this week, particularly with Barron’s headline on Saturday. It is a stretch to think the SP 500 is wildly overvalued trading at 16(x) forward earnings with 8% earnings growth, and trading roughly 10(x) cash-flow.

Great chart by Norm Conley on the Energy sector’s relative strength. Wow. Here is another chart by Norm on the “mean reversion” occurring between crude oil and natural gas. If you aren’t following @JAG_Norm you absolutely should be.

12.5.14: SP 500 Weekly Earnings Update: Energy Masking Decent Earnings Growth for Rest of SP 500

December 6, 2014 at 1:19 am | Posted in Energy sector, TOL, Weekly Earnings Update | Leave a comment

Per ThomsonReuter’s “This Week in Earnings”, the “forward 4-quarter” estimate for the SP 500 fell to $125.36, from last week’s to $126.15.

The Data:

P.E Ratio: 16.5(x)

The PEG: 2.31(x)

The Earnings Yield: 6.04%

The year-over-year growth of the forward estimate fell again to 7.18% from last week’s 7.46%.

Analysis / commentary: The Energy sector continues to be a huge drag on q4 ’14 SP 500 earnings, which is also weighing on the forward estimate for the SP 500. Here is the estimated earnings growth rate for the Energy sector (using Thomson data) for q4 ’14 over the last five weeks. (The 2nd column is the estimated SP 500 earnings growth for the 4th quarter):

12/5/14: -14.7%, +6.2%

11/28/14: -10.5%, +6.6%

11/21/14: -8.6%, +6.6%

11/14/14 -7.9%, +6.6%

11/7/14: -6.9%, +6.6%

Since October 1, the change in the q4 ’14 Energy sector’s growth rate has been remarkable: from +6.6%as of October 1,  to today’s -14.6% or a whopping 2000 basis point decline in 11 weeks.

If we look at estimate changes for full-year 2015, the change in Energy’s expected full-year earnings growth rate has fallen from +6.9% on October 1 ’14 to an estimated 9.4% decline as of December 5th or a roughly 1,600 basis point decline.

The estimated earnings growth rate for the SP 500 for q4 ’14 has fallen from +11.2% as of October 1, to +6.2% today.

The estimated earnings growth for the SP 500 for 2015 has fallen from +12.4% as of October 1, to +9.4% today, December 5th.

What I find puzzling is that in terms of the 10 SP 500 sectors, not one sector is getting the numbers bump, as Energy prices plummet. Not for q4 ’14 or even for full-year 2015.

The Utilities sector is the only sector to show a higher growth rate for q4 ’14 today at +9.9%, versus +7.7% as of October 1.

Conclusion: I do suspect the drag of Energy revisions is masking pretty good earnings growth in the rest of the SP 500, but it isn’t in the numbers in terms of the other sectors yet. This coming week, the two companies we are watching in terms of earnings reports are Costco (COST), and Toll Brothers (TOL). Costco could be a gasoline price drop beneficiary both from their gas centers at the stores which are sensitive to changes in gas prices and simply additional consumer spending power from more discretionary income on the part of the consumer. COST reported solid November comp’s again. Whether the stock has fully discounted all this remains to be seen. Toll Brothers (TOL) preannounced stronger revenues in November and the stock is up 15% since. Housing probably wasn’t wild about today’s November payroll report. Housing in general has been mixed: TOL is a high-end homebuilder so we get a look at the higher end of the market on Wednesday morning, December 10th.




11.30.14: Sector returns for 2014

November 30, 2014 at 11:20 pm | Posted in Basic Materials, Consumer Discretionary, Consumer Staples, Financial sector, Industrials, Technology | Leave a comment

Since so much of our earnings work is sector-related, here is a quick recap of sector returns for November ’14, both from the SP 500 perspective and the SPDR perspective:

(The first column is the SP 500 sector return per the Wall Street Journal’s Saturday, 11/29/14 edition, while the 2nd column is the return of the SPDR sector ETF):

Consumer Staples: +5.3%, +6.71%

Consumer Discretionary: +5.3%, +6.86%

Technology: +5%, +6.68%

Health Care: +3.2%, +5.85%

Industrials: +2.8%, +4.15%

Financials: +2.1%, +4.36%

Basic Materials: +1.2%, +2.97%

Telco: +1.1%, +2.64%

Utilities: +0.7%, +2.82%

Energy: -8.8%, -6.87%

SP 500: +4.42%, +4.43%

(Sources: the Wall Street Journal (WSJ) credits Factset as their source, while my source for the SPRD sector ETF returns was ycharts.com.)

Personally, I’ve been wanting to do this for a while, i.e. comparing some of the ETF’s to the actual SP 500 sector returns for given periods. If readers just held the SPDR sector ETF’s in the same weights as that sector sports within the SP 500, you’d have done substantially better than the SP 500 or a normal index fund. For example, within the XLK or Technology ETF, AAPL’s weight is 17%, while AAPL’s weight within the SP 500 is roughly 3.5%. Naturally AAPL’s heavier weighting in the XLK ETF could account for the 168 basis points in extra return for the SPDR ETF, since AAPL was up 11.9% in the month of November ’14 alone.

The SPDR ETF’s even offered better risk – reward in the losing sector Energy, no doubt given Exxon and Chevron’s weights, which are 30% of the market cap of the XLE combined. Exxon (XOM) was down 4.11% in the month of November ’14 alone, which Chevron (CVX) fell 6.19%.

Please don’t misconstrue this blog post as an infomercial for the SPDR’s. I’ve always wondered how the sector ETF’s compare to sector returns of the ETF universe over time. It is something I’d like to spend more time analyzing. Anytime I can write about a  topic for readers, I come away learning more about it, and thinking further about our client strategy.

Here is how our top 5 holdings for clients did both in the month of November (first column), and YTD (2nd column):

Microsoft: +3.39%, +31.30%

Alcoa: +4.35%, +64.03%

Schwab: +4.76%, +9.92%

Wal-Mart: +14.66%, +13.40%

Whole Foods: +26.37%, -14.29%

SP 500: +4.42%, +13.98%

While Microsoft and Alcoa have lagged in q4 ’14, their YTD returns are very nice. In hindsight it was prudent to add to Whole Foods under $40 after the disastrous May ’14 quarter. Wal-Mart has been a core position for a while and is a huge beneficiary of the drop in gasoline prices.

The biggest change in the “Top 5″ since the 3rd quarter end, was selling a good chunk of Facebook (FB). Clients still have a bout 60% – 65% of the original position, but there is no question the stock has stopped making new highs as the SP 500 has marched higher this year and through the 4th quarter.

Thanks for reading.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager



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