SP 500 Earnings Update: All About FOMC and the G20 for Next Two Weeks

For the next four weeks, the SP 500 will see fewer earnings releases as the number of companies reporting their March ’19 quarter is now done. We will hear from a few companies like Oracle (ORCL) this week and then FedEx (FDX) and Micron (MU) next week, who will report their May ’19 quarter.

The big news will come from the FOMC this week, with the meeting scheduled for Tuesday and Wednesday. The financial media will breathlessly focus on the meeting and the release Wednesday afternoon since air time must be filled, but even though the last payroll report was weak, the lowest unemployment rate since the late 1960’s and a pretty decent economy likely means we hear more soft rhetoric but no policy action.

Per the CME fed funds futures, there is a 76% chance that the current 2.50% fed funds rate is maintained,. although the probability is growing that there is a rate cut later in 2019.

The G20 follows at the end of June, and it seems like there is headlines both ways whether President Trump and China’s XI will meet at the G20. This has to be creating a high degree of uncertainty with US CEO’s that either sell or produce with links to China, so the rhetoric alone has to be resulting in more caution on the part of US companies, which ultimately means slower growth.

SP 500 Earnings data by the numbers: (Source: IBES by Refinitiv)

  • Fwd 4-qtr est: $171.06 vs last week’s $171.52
  • PE ratio: 16.9x
  • PEG ratio: 3.9x
  • SP 500 earnings yield: 5.93% vs last week’s 5.97%
  • Y/y growth fwd est: 4.3% vs last week’s 4.7%

Summary / Conclusion: Per the IBES data, Q2 ’19 expected SP 500 earnings growth is just +0.3% and could slip under 0 before earnings start July 10th or so. As of April 1 ’19 and per the IBES data, the SP 500 expectation for earnings growth was for Q1 ’19 was -2% so today’s actual rate of growth of +1.6% was +3.6% better-than-expected and in line with historical “upside surprises” for quarterly earnings.

But the bigger picture is that with Q1 and Q2 ’19 expected at low-single-digit year-over-year growth and the “forward 4-quarter estimate” at 4.7% the expectations for SP 500 earnings continues to be quite subdued.

Like the country lawyer once said (about whether that portends positively or negatively for forward SP 500 returns), “I can argue it either way”.

On this week’s FOMC meeting Jeff Miller’s “Dash of Insight” weekly blog labeled “Weighing the Week Ahead” notes that Powell is expected to have very soothing comments this week, and then reduce the fed funds by July ’19.

A Presidential tweet can change everything, but fed funds rate reduction should be bullish for expected forward returns for stock prices.

 

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