SP 500 Weekly Earnings Update: The Dollar Has Rallied All of May

Because the Chicago triathlon season is nearly upon us, and Chicago being a truly summer city, sometimes the Weekly Earnings Updates (during the summer months) will get posted in a sporadic fashion, over a weekend, or maybe not until Monday the following week, simply because training or competition calls.

Thomson Reuters data “By the Numbers”:¬†

  • Forward 4-quarter estimate: $123.26
  • P/E ratio: 17(x)
  • PEG ratio: 17.7(x) and still not meaningful given the y/y growth of the forward estimate
  • SP 500 earnings yield: 5.87% , well below 6% after last week’s rally,
  • Year-over-year growth of the forward estimate: +0.96% versus last week’s +0.94%

With roughly 490 of the SP 500 having reported Q1 ’16 earnings, attention now turns to the companies that will report over the next 4 weeks that have May ’16 quarter’s end, which is companies like Fed-Ex, Nike, Micron, Oracle, Accenture, and a host of others.

Broadcom (AVGO) reports this week which could be a good view into the semiconductor space. I’ve never owned or followed the company and my only semi positions today are small weighting’s in Micron and Intel but Broadcom is an Apple supplier and in the midst of a merger.

Usually with quiet earnings weeks like this coming 4 days, the attention turns to macro since the mainstream financial media has to feed the beast with something: The dollar has now strengthened for almost the entire month of May ’16 and the “grand rotation” that started earlier in the year has now stopped “rotating” (as they say).¬†Gold, silver, copper have now while maybe not fading from critical technical levels, have at least stopped their rapid ascension, and even crude oil after touching $50 last week, backed off from $50 later in the week.

All the charts, including crude oil, that looked like they were primed to break above long-term downtrends, have now stopped ascending, which ( in my opinion) is coincident with the dollar strength.

If you look at the “asset class return tables” for the last 5 years, commodities, and now Energy the last 18 months, have been at or near the bottom of the asset returns tables for those years, so I thought maybe we could be seeing a real recovery for grains, metals, and Energy / natural gas.

Summary / conclusion: My own opinion is that the SP 500 earnings eventually break out of this three-year malaise around $118 per share and resume their normal 7% – 9% annual growth, and the SP 500 will likely precede this by the SP 500 breaking out above the 2,130 – 2,135 all-time highs from the summer of 2015.

Commodity strength would help with my confidence around this forecast since it would imply that there is some demand improvement, or some expected improvement in global growth.

The forecast for 2016 was that the SP 500 would be up in the neighborhood of 10% for the calendar year, and the sector overweight’s were Financials and Technology.

The long-term wealth-generation and profit-creation machine that is the US economy and the SP 500 isn’t broken, it’s just got an elephant sitting on its chest.

However the US dollar still matters here, particularly as it pertains to SP 500 revenue growth. I’d hate to see it strengthen much more and much further in the 2nd quarter. (The UUP is short-term overbought, but on the weekly chart it is still oversold.)

 

 

 

 

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