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