SP 500 Earnings: How Are the 4th Quarter, ’17 Sector Earnings Growth Estimates Shaping up ?

Here is the blog post from October 8. 2017, where Q4 ’17 was looked at initially, relative to July 1 expectations.

Remember, it isn’t just the rate of change for forward estimates, but the direction, whether the revisions are upward or downward.

Using data as of Friday, 11/3/17, the October 8th data in the blog post above, and the July 1 ’17 data, here is the trend in sector growth estimates for the 11 sectors of the SP 500:

  • Cons Disc: +7.7%, +10.1%, +11.8%;
  • Cons Spls: +8.6%, +9.2%, +8.7%;
  • Energy: +109%, +91%, +118%;
  • Financials: +15.5%, +15.8%, +16.5%
  • Hlth Care: +5.1%, +6.8%, +7.5%
  • Industrials: +4.0%, +11.9%, +15.7%
  • Basic Mat: +25.3%, +23.5%, +20.3%
  • Real Estate: -0.3%, -0.2%, +0.5%
  • Technology: +13.6%, +12.3%, +10.4%
  • Telco: -0.5%, +0.5%, +0.9%
  • Ute’s: +9.6%, +3.7%, +3.8%
  • SP 500: +11.7%, +12.3%, +13.1% 

Analysis: The sectors that are seeing what I would refer to as “normal” erosion of estimates into the quarter’s reporting period, which is 60 days from now or mid-January ’17, are Consumer Discretionary. Health Care, Industrial’s, (actually Industrial’s seeing sharp downward revisions, and I wonder if that is due to GE, or an expected stronger dollar, or both), Real Estate, Telco, and the SP 500 as a whole.

The sectors where the estimates are continuing to diverge from the normal, downward pattern, and likely offer investors relative value opportunity in a market that continues higher are Energy, (maybe, maybe not, but the estimates have turned higher once again), Financials, (expected 15% growth for Q4 ’17 is very healthy, possibly the best quarterly growth in years), Basic Materials, Ute’s (look at the pop in the expected growth of Utility earnings the last 4 weeks), and finally Technology, no surprise, given Apple’s earnings this past week.

Where investing is concerned, there is “absolute strength” and then there is “relative strength”: with the Tech sector up over 30% YTD, and 7 roughly 7 – 8 weeks left in the year, I thought we’d see Tech’s earnings start to give way a little, but not much.

Still given the total return of the Technology sector this year, the plan is to trim some Technology exposure around year-end, and rotate into either Financial’s, Health Care or Basic Materials.

A bad bet was made on GE for clients, and GE’s absolute and relative performance to both Industrial’s and the SP 500 has been atrocious.

Still, It would be tough to chase non-GE Industrial exposure here.

Here is the weekly Thomson Reuters data “by the numbers” update for this week:

  • Fwd 4-qtr estimate: $142.16
  • P.E ratio: 18.2(x)
  • PEG ratio: 1.72%
  • SP 500 earnings yield: 5.49% versus last week’s 5.51%
  • Year-over-year growth of forward estimate: +10.58% vs last week’s 10.18%

The 10.58% y/y growth of the forward estimate is the highest value Ive seen in years, tracking this data. Growth of the forward estimate looks to be firmly above 10% now.

More to come on Sunday – a could individual sectors will be looked at.

Remember too, Basic Materials, Real Estate, Utiliies, and Telco represent about 3% of the SP 500 each, by sector, or around 12% of the SP 500’s total market combined.

That doesnt mean you can make money in these sectors, but of you are benchmarking relative to the SP 500, know where your biggest bang is, for the buck so to speak.

Thanks for reading.

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