By the end of this week, we will have heard from about 60% of the SP 500 in terms of Q1 ’16 financial results.
How have expectations changed for Q2 ’16 and for full-year ’16 since April 1 ?
Using Thomson Reuters data, here are the sectors that have seen an increase in their expected earnings growth rate since April 1 ?
For Q2 ’16:
- Financials: -0.8% vs -2.7% as of April 1. (Improvement but still negative, just slightly so.)
- Health Care: +5.3%, vs. +4.9% on April 1.
- Industrial’s: +3.4%, vs +0.5% on April 1.
- Basic Materials: -8.1% vs -8.9% on April 1.
- Utilities: +4%, vs 2.9% on April 1.
- SP 500: -2.2% vs -2.2% on April 1.
For Full-year 2016:
- Consumer Discretionary: +11.9% vs +11.2% as of April 1.
- Consumer Staples: +3.3% vs +2.9% on April 1.
- Health Care: +8.1% vs +7.6% on April 1.
- Basic Materials: -0.4% vs -1.8% on April 1.
- SP 500: +1.2%, vs +1.8% on April 1.
Analysis / Conclusion: Exxon and Chevron report their Q1 ’16 financial results on Friday, April 29th, so the Energy sector will be heavily influenced by those two giants in terms of forward estimates following the conference calls. To be frank, it was a little surprising NOT to see Industrial’s on the full-year ’16 improvement table. I wonder then if the dollar weakness is expected to be short-lived. It is clear Technology sector earnings are weaker, and the SP 500 is looking at its second consecutive year of low single-digit growth. (Long XLE, IYE, XOM)
Pay attention to the sector that turn up in both periods: Health Care and Basic Materials.
Basic materials is Alcoa (AA), Freeport (FCX), US Steel (X), etc. (Not long any)
After 5 years of highlighting the bottom of the “asset class return” tables, commodities are starting to turn. There hasn’t been a convincing breakout or break of downtrend lines, but there has been a significant rotation for sure.
The Financial sector overweight didnt look too great in Q1 ’16, but that sector is starting to recover. Bank of America was swapped for Goldman Sachs, as Goldman came down from $210 to $140. (Long GS).