11.2.14: Factset on 4th quarter, 2014, SP 500 Earnings Estimates

In yesterday’s SP 500 Weekly Earnings Update, I tried to lay out the case for Technology and Industrial’s overweights, while quantifying the drag that the Energy sector was having on SP 500 forward earnings estimates.

The question on just how much of a drag the Energy sector was having on q4 ’14 and forward SP 500 earnings estimates wasn’t answered directly, but I hope to have that for you this week.

John Butters writes the weekly earnings commentary for Factset, and prior to do doing this for Factset, John was grand poohbah at Thomson Reuters, writing the “This Week in Earnings” weekly missive, which Greg Harrison now quite ably handles for T/R. I read both every week, but our model is based on the hard data provided by Thomson, so we’ve stuck with Thomson Reuters as our (my) primary earnings data provider.

In the Factset commentary this week, John Butters notes that:

1.) “The q4 ’14 bottoms-up estimate (which is an aggregation for all the companies in the index) dropped by 2.7% this month”;

2.) Without quoting verbatim, but using the Facset stats, the “average decline” during the first month of a quarter historically has been:

  • 1.3% – 4 quarter average
  • 0.6% – 20 quarter average
  • 1.8% – 40 quarter or 10-year average

Although John didn’t exactly quantify the earnings drag, he did go on to note that “most of the reductions in earnings estimates have occurred in the commodity-based sectors”.

Per the Factset data, the Energy sector has recorded the largest decline of all 10 sectors in terms of bottoms-up EPS estimates at -10.8%, followed by Basic Mat at -7.5%.

Per John Butters commentary, “no other sector has recorded a decrease in bottoms-up EPS of greater than 3.3% through the first month of the quarter”.

Factset had some other interesting tidbits as well, but we’ll save those for the trading week. Here is the link to John Butters and Factset’s earnings commentary: www.factset.com/earningsinsight. What Thomson Reuters and Factset provide is powerful info for the medium-to-long-term investor.

Stay with and overweight the non-commodity sectors of the SP 500, at least through the end of the year.

Do your homework, and track the data, or continue to read this blog where we try and do that for you, in a meaningful way.

Thanks for reading and stopping by. We’ll be out with more what we hope is useful and interesting data during the week.

The conclusion you should take from yesterday’s and today’s post(s) on SP 500 earnings is that, while there is pressure on the SP 500’s forward estimates, and on q4 ’14 earnings, it is overwhelmingly coming from Energy and certain commodities. That should leave the reader plenty of room to pick your sector and sub-sector and individual names into year-end 2014.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

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