Can SP 500 Finally Break the Downtrend Line off the Sept. ’18 Peak?

SP 500 daily chart as of 1/25/19

Trading back above the downtrend line will be the 2nd major test after the SP 500 recovered it’s 50-day moving average near 2,600.

The government shutdown likely took the Fed / FOMC off the table for a while in terms of the US economy, although the last December ’18 jobs report of +312,000 net new jobs created and last week’s jobless claims number under 200,000 for the first time since the late 1960’s indicates the labor market is strong. However there is just no inflation, wage or commodity. Pretty amazing 10 years into an economic recovery.

SP 500 Earnings data (Source: I/B/E/S by Refinitiv)

  • Fwd 4-qtr est: $170.01 vs $170.98
  • PE ratio: 15.6x
  • PEG ratio: 3x
  • SP 500 earnings yield: 6.38% vs last week’s 6.40%
  • Year-over-year growth of fwd est: +4.9% vs last week’s +5.5%

The Technology sector’s expected earnings growth rates continue to be weak and revised lower, even as Microsoft is set to report their fiscal Q2 ’19 earnings this coming week. Microsoft could be the “ying” to Apple’s “yang” this quarter, since Microsoft has overtaken Apple as the #1 stock by market cap weight in the SP 500.

Here is how the Tech sector’s expected earnings growth rates look over the next 4 quarters:

  • Q4 ’19: +9.2%
  • Q3 ’19: -1%
  • Q2 ’19: -2.3%
  • Q1 ’19: -2.2%
  • Q4 ’18: +8.9%

It’s obvious the I/B/E/S data is looking for a weak 2019 for Tech, with the exception of Q4 ’19 although we have to give it a few weeks to see if the 4th quarter expectations hold up after Microsoft, Apple and such.

Apple is a big influence on these numbers and its clear this will be a transition year for the iPhone and Tech Hardware the next few quarters.

The Tech sector continues to be a major downward pull for the SP 500 expected 2019 earnings growth as of today. Microsoft’s report this week could definitely help the sector.

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