SP 500 Weekly Earnings Update: Can the SP 500 Make an All-Time-High off of Q2 ’16 Earnings ?

And that is the $64,000 question.

The SP 500 stopped inches short of the record close from May 21 ’16 of 2,130.82.

The first 6 months of 2016 have seen a powerful recovery in commodity prices, which should alleviate the substantial drag on SP 500 earnings from the Energy and Basic Material’s sectors, both sectors combined comprising roughly 10% of the SP 500 by market cap.

Alcoa, JP Morgan, Wells Fargo and Citi all report this week, which is par for the course so the Street and investors will get a good look at how the big banks and Financial’s like BlackRock performed in Q2.

Q2 ’16 Expected Earnings Growth by Sector: 

  • Cons Disc: +8.8%
  • Health Care +4.3%
  • Industrial’s: +3.1%
  • Utilities: +1.6%
  • Telecom: -1.0%
  • Cons Spls: -1.2%
  • Financial’s: -5.7%
  • Technology: -6%
  • Basic Mat -10%
  • Energy: -78.2%
  • SP 500: -4.8%

Source: Thomson Reuters

Q2 ’16 Expected Revenue Growth by Sector:

  • Telco: +10.9%
  • Health Care: +7.9%
  • Cons Disc: +5.0%
  • Ute’s +5.0%
  • Cons Spls: +1.8%
  • Financial’s: +0.2%
  • Industrial’s: -1.3%
  • Technology: -4.9%
  • Basic Materials: -5.0%
  • Energy: -25.9%
  • SP 500: -1.0%

Source: Thomson Reuters

Thomson Reuters Weekly Earnings Data (by the numbers):

  • Forward 4-Quarter estimate: $127.04 vs last week’s $122.76 (The “quarterly roll” occurred this week as the new forward 4-Quarter period is now Q3 ’16 – Q2 ’17)
  • P.E ratio: 16.77(x)
  • PEG ratio: 14.6(x)
  • SP 500 earnings yield: 5.96%. Despite the rally in the SP 500 this week, the quarterly roll in the fwd 4-quarter estimate lifted the yield from 5.84% to 5.96%
  • Year-over-year growth of the forward estimate: +1.15% (would have preferred to see +3% – 4% growth, but not yet).

Analysis / conclusion: Many pundits talk about the 2 – 3 quarters of consecutive negative earnings growth for the SP 500 but fewer talk about the revenue growth: even though the Street has seen 3 consecutive quarters of negative earnings growth from the SP 500, investors have seen 5 straight quarters of negative revenue growth. In Q1 and Q2 ’15, revenue growth was negative, but overall EPS growth for the SP 500 was positive.

Here are the numbers: Actual EPS and Revenue growth for SP 500

Q3 ’14: +10.3% EPS growth and +4.1% revenue growth

Q4 ’14: +7% EPS growth and +2.1% revenue growth

Q1 ’15: +2.2% EPS growth and -3.1% revenue growth

Q2 ’15: +1.3% EPS growth and -3.4% revenue growth

Q3 ’15: -0.08% EPS growth and -4.3% revenue growth

Q4 ’15: -2.9% EPS growth and -3.5% revenue growth

Q1 ’16: -5% EPS growth and -1.7% revenue growth

Estimated:

Q2 ’16: -4.8% EPS growth and -1% revenue growth

To answer the headline question, a lot depends on what the estimates do for Q4 ’16 and 2017 with the Q2 ’16 earnings reports.

While stocks move on upside / downside surprises, it is the “voting machine vs weighing machine” analogy: there is definitely a forward-looking component to stock prices (a statement that should be no surprise to anyone).

If we get stronger-than-expected revenue growth from the SP 500, particularly from Energy and Basic Materials, and most importantly Technology, look for the SP 500 to break to an all-time-high.

I’ll say right here on this blog, Energy sector revenue has bottomed with Q4 ’15, as has Basic Materials, which means the worst is in for earnings declines too.

I do think these two sectors will provide some surprises to Q2 ’16 earnings as noted a few weeks ago.

More to come Sunday, July 10th.

 

 

 

 

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