Technology was the clear winner in Q1 ’17 according to this link from Ed Yardeni (dated 3/30/17) YardeniSP500perf’17YTD33117, with the SP up roughly 6% on the quarter. Financials were white hot after the election last November, while Tech remained punk through most of Q4 ’16, so I suspect we saw some giveback or “reversion” in Q1 ’17.
For full-year 2016, here is how the main benchmarks returned:
- Russell 2000: +21%
- SP 500: +12%
- Nasdaq: +7%
This is one of the reasons Tech remained “overweight” in client accounts coming into 2017, while the Russell 2000 was sold (and it wasn’t a big position anyway).
A 24% annualized pace for the large-cap benchmark isn’t too shabby – let’s see if it can continue.
Technology was up roughly 12% on the quarter, while the Energy sector fell 7%.
Clients are currently overweight both sectors, along with Financials.
With Technology, Financials, Health Care and Energy, readers can get roughly 65% of the SP 500 by market cap.
The dividend and “safety” trades which we avoided for years for clients were mixed: Telco fell 5%, Utilities rose 5% and Real Estate was up 2%.
The Energy Sector
Let’s look at Energy quickly: fortunately the bearish sentiment has dissipated to some extent and with crude oil (WTI) struggling with $50 per barrel, the areas of focus are two fold over the next 30 days:
1.) Can crude oil catch a bid into the mid $50’s into the 2nd quarter ? (Investors don’t need a home run, just some slow persistent strength)
2.) Can Energy sector earnings which start typically the 3rd week of April and will be mostly done by the first week of May, catalyze the sector against very weak comp’s in 2016 ?
Those are the questions guiding my playbook for the sector over the next 4 – 5 weeks. Energy earnings LOOK strong based on profits being entirely wiped out in Q1 ’16 thus the denominators are very small for y/y growth for the sector.
The Big Energy 4 usually report first: first Halliburton and Schlumberger, and then Exxon and Chevron. These 4 companies represent a big chunk of the “earnings weight” of the Energy sector.
Thomson Reuters data by the numbers:
- Forward 4-Quarter estimate: $130.98 vs last week’s $130.91
- P.E ratio: 18(x)
- PEG ratio: 3(x)
- SP 500 earnings yield: 5.53%, and now between 5.51% and 5.55% for the last 6 weeks
- Y/Y growth rate of the forward estimate: fell to 6% y/y growth, which will be explained in the next paragraph.
Analysis / conclusion: The y/y growth rate fell 200 basis points, since the year-ago quarter incorporates the “quarterly bump” at the start of every quarter. next week the “forward 4-quarter estimate” will be around $134 after the quarterly bump, thus the y/y growth rate will be an apples-to-apples comparison. (This is why the PEG ratio jumped from 2(x) to 3(x), since forward growth slowed to 6%, on an 18(x) P.E. next week the PEG shoudl look “more normal” and year-over-year growth could be at 9% or more.
I think SP 500 earnings are in sweet spot here: Technology is strong, even semiconductors are flush, and that sector is like trading your crazy uncle.
Look for more posts over the weekend. A lot to cover with earnings by sector.
Thanks for reading.