The headline on this week’s Thomson Reuters “This Week in Earnings” is that SP 500 earnings are +3.6% after 300 of the SP 500 have reported their 3rd quarter, 2016, results.
Ex-Energy, SP 500 have grown +6.7%.
About a month ago, this blog predicted this, based on historical surprise factors.
Now here is the catch: Exxon (XOM) and Chevron (CVX) reported their Q3 ’16 financial results Friday morning, October 28th, 2016, while Thomson Reuters cuts off the data s of Thursday night, and with XOM’s revenue miss, we could see different data as soon as Monday, October 31 ’16.
In other words, with XOM being (by far) the biggest component of the Energy space and Energy being the largest expected delta within the SP 500 over the next few quarters, the revisions for XOM and CVX matter.
Monday or Tuesday night, look for an update on Energy estimates on this blog, for Q4 ’16 and forward quarters.
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Thomson Reuters by the data: as of Thursday, 10/27/16
Forward 4-quarter estimate: $128.97 vs last week’s $129.16
P.E ratio: 16.5(x)
PEG ratio: 4.4(x)
SP 500 earnings yield: 6.07% vs last week’s 6.03%. Usually an SP 500 earnings yield above 6% has triggered a decent rally.
Year-over-year growth rate of forward estimate: +3.74% vs last week’s 3.83%. (Most recent high from late 2014 was over 7%. Readers can see the dramatic effect the Energy collapse has had on SP 500 earnings).
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Conclusion: This requires a separate blog post later this weekend, but for Q4 ’16, Technology and Financial’s are the two sectors seeing higher upward revisions, versus the current Q3 ’16 results. Again, it bears repeating many times for readers, but the trend in revisions at this time for forward quarters is usually downward, so to see upward revisions for a sector is an important tell.
The takeaway today is that Q3 ’16 earnings look very healthy. The financial media will crow how Q3 ’16 is the first quarter of positive earnings growth in the last 3,4,5 quarters, but that was easy to see coming just from the SP 500 earnings “surprise” factor. On average the SP 500 actual results usually come in 3% – 5% higher than the expected growth rate on Jan 1, April 1, July 1 and October 1.
Health Care was ugly this week, and again, because McKesson (MCK) and Amgen (AMGN) reported Thursday night, and Friday morning, 10/28/16, the revisions following those numbers are NOT in the Thomson Reuters data as of this weekend.
Our two largest sector overweight’s for clients are Technology and Financials: the rationale for the weightings was that these two sectors saw their bear markets last decade and thus all the valuation excess and optimism was flushed entirely from these sectors, which also happen to be the two largest sectors of the SP 500 comprising about 35% of the SP 500 by market cap. (Health Care may now be the 2nd largest weighting in the SP 500 by market cap,. now that real estate has been spun out from Financial’s, but the out-performance in Financial’s since Q3 started and now with Health Care woes the last 8 weeks, might have narrowed some of the differential.)
Just 9% of Health Care stocks are trading above their respective 50-day moving averages, per a chart from Bespoke published Thursday, and that may have gotten worse on Friday, 10/28 given the McKesson (MCK) and Amgen (AMGN) results.