Can “Value” Narrow Performance Gap in 2016 ? Implications for Earnings Estimates

SP 500 earnings data By the Numbers (source – Thomson Reuters) 

Forward 4-quarter estimate this week fell to $123.06 vs. $124.53

The P.E ratio as of Friday, January 29, was 15.7(x)

The PEG ratio is still 3(x) on a core basis and 7(x) versus the stated growth rate

The SP 500 earnings yield is still elevated at 6.34% vs last week’s 6.53%

The y/y growth rate of the forward estimate was 2.08% as of Friday, January 29th versus last week’s 1.67%. This is the first sustained increase in the y/y growth rate since last April, 2015.


For readers perspective, what is happening is that although the “forward 4-quarter estimate” listed above continues to fall, which is natural, it is lapping a faster decline from the January, 2015 period (or as they say in the investment business, an “easier comp”) thus the forward growth rate continues to improve.

As grim as it looks, the actual forward estimate decline was faster in Q1 ’15, and even went negative from April, 2015, through just the last few weeks.

The above discussion about the growth rate of the forward estimate is very pertinent to an ancillary aspect of the start to the 2016 stock market: how will Value perform relative to Growth (and really FANG) in 2016, and what does that mean for the forward estimate ?

Although performance and index data for January ’16 isnt officially downloaded for another week, using some of the Bespoke ETF data, Value is performing right in line with Growth as of January, 2016. In fact “Value” outperformed “Growth” in January, 2016 by 44 basis points if the “SP 500 Growth” ETF is compared to the “SP 500 Value” ETF for the month of January ’16, and per the Bespoke data. In January, 2016, the SP 500 Growth ETF returned -7.05%, versus the SP 500 Value ETF’s -6.63%.

When index data is downloaded, comparing the Russell 1,000 Growth index vs the Russell 1,000 Value index will be the better metrics.

SP 500 Growth outperformed Value by 900 bp’s in 2015: I’m not expecting that for 2016.

The point of all this being that the “Value” sectors within the SP 500 like Energy and Basic Materials, if they would just stop getting worse (negative downward revisions, week in and week out), the forward estimate growth rate would likely continue to grow.

The big surprise for January ’16 was that Financials performed the worst of the 10 SP 500 sectors, as bad as Basic Materials, and twice as bad as Energy. (How is that for a surprise ?)

SPDR ETF returns (January ’16):

  • XLF: -11.13% (Financial ETF)
  • XLB: -11.99% (Basic Materials ETF)
  • XLE: -5.96% (Energy ETF)

With the XLE and the IYE, the two Energy ETF’s, Exxon and Chevron are the lion’s share of both ETF’s with the two stocks representing 28% – 30% of the ETF’s market cap. Chevron reported Friday, January 29th, 2016, and managed to finish slightly higher on the day despite pretty bad results and a pretty big miss on both EPS and revenue.

The disparity between large-cap and small-cap continued in January ’16 as the SP 500 fell 5% for the month, while the Russell 2000 fell approximately 8% – 10%.

Analysis / conclusion: Our two heaviest sectors remain Technology and Financial’s, and both look wobbly. The recovery in the Bank of America (BAC) this week, was significant in my opinion. (See my article on Seeking Alpha here, ( Since Seeking Alpha picks up this blog each week, hopefully they won’t mind me linking directly to the article.) Barron’s is out favorable on the big banks this weekend, so look for some upside in the XLF and the big banks, Monday, February 1 ’16.

Readers will call me out for sure, I still think 2016 will be a positive year for SP 500 returns, as was written about here. The SP 500 earnings yield at 6.34% is still elevated, even though the revisions and the growth rates look grim.

71% of the 200 SP 500 companies that have reported Q4 ’15 earnings have beaten the estimate. Only 47% have beaten the consensus revenue estimate. These stats are in line with recent quarter’s numbers.

The dollar strength is still a drag on stated company revenues, as “constant currency” revenues are 3% – 7% higher, depending on the company. I think this is having a significant drag on the Technology sector.

The real litmus test in my opinion is the Energy, Basic Materials, and other Value sectors within the SP 500. If they can start to stabilize, 2016 might not look so grim.




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