SP 500 Earnings, the 10-Year Treasury yield, Early Look at Q2 ’17 Earnings Expectations

It was somewhat surprising to hear/read Larry Fink, the BlackRock CEO make a comment on Q2 ’17 earnings, although it was unclear whether he was talking Blackrock’s (BLK) results as a firm, or the economy / SP 500 in general. (It looks / sounds like he is talking the SP 500 in general.)

My own opinion is Mr. Fink is pretty wrong on SP 500 earnings.

Financials have struggled in Q2 ’17, and unperformed year-to-date, but in my opinion that is already discounted in the prices of a lot of the big-cap Financial names.

John Butters over at Factset notes the reduced pressure on Q2 ’17 SP 500 earnings (fewer estimate cuts), which is what this blog has been saying since mid-May ’17 (also quoting Factset).

Q2 ’17 Expected SP 500 earnings growth 

  • Cons Disc: +1% today vs +4.3% as of April 1, ’17
  • Cons Spls: +3.5% today vs +4.8% as of April 1 ’17
  • Energy: +707% today vs +869% as of April  1′ 17
  • Financials: +9.3% today vs +10.5% as of April 1, ’17
  • Hlth Care: +2.3% today vs +3.3% as of April 1 ’17
  • Industrials: +1.7% today vs +1.3% as of April 1 ’17
  • Basic Mat: +4.7% today vs +9.9% as of April 1 ’17
  • Real estate: +3.3% today vs +3.5% as of April 1 ’17
  • Technology: +11% today vs +11.5% as of April 1 ’17
  • Telco: +1.3% today vs +5.2% as of April 1 ’17
  • Utilities: -3.35 today vs -0.8% as of April 1 ’17
  • SP 500: +8.4% today, vs +10.2% as of April 1 ’17

Source: Thomson Reuters I/B/E/S “This Week in Earnings” June 2 ’17

Note the small downside revisions in Technology and Financials (despite the so-called warnings this week by the Financial sector) and note the upward revision to the Industrial’s sector. Those 3 sectors are 45% of the SP 500 by market cap.

What I worry about this week is the Comey testimony which I believe is set for Thursday, June 8th. There are articles on the political blogs that state the Trump Administration is already trying to thwart former AG Comey’s testimony, which will not look good. The new Deputy AG (Rosenstein ?) is also expected to testify – that may prove more revealing.

Through 5 month of 2017, the SP 500 is up about 8.5% – 9% year-to-date.

The 10-year Treasury yield is at a critical level:

Click to enlarge


Note how the 10-year Treasury yield is sitting right on its uptrend line off the post-Brexit low.

What happens to the 1-year yield matters to Financial’s too. My friend Jeff Miller over at “A Dash of Insight” and a very good blogger in his own right notes there is no inflation in the US economy and he is very right.

Here is a good article from Wall Street Journal’s RealTime Economics on the impact of “unlimited data plans” on the CPI. You don’t have to wonder why the telecom sector is struggling these days.

Thomson Reuters data (by the numbers): 

  • Fwd 4-qtr est: $134.83
  • P.E ratio: 18(x)
  • PEG ratio: 1.93(x)
  • SP 500 earnings yield: 5.53%
  • Year-over-yr growth of fwd estimate: +9.36% vs last week’s 9.45%

Summary/conclusion: SP 500 earnings are in good shape, with large-cap growth leading the charge this year with returns in the 20% range, versus small-cap value which is negative on the year. It would be helpful to see the 10-year Treasury rise in yield in June and then through the rest of the summer.

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