SP 500 Earnings Update: Expect “Peak Growth Rates” in Q2 ’21

Data Source: IBES data by Refinitiv

Updating this one graph every week, it’s truly hard to underestimate the strength of SP 500 EPS and revenue.

Note the SP 500 “expected” revenue growth rate revisions since Dec 31, 2020.

Obviously market cap is a big influence on the SP 500 performance, but the data and revisions trends are crystal clear.

Sector look: 

IBES data by Refinitiv

Tracking the full-year 2021 perspective, note the jump in “Communications Services” since April 2. It’s 2021 expected EPS growth rate has doubled in 5 weeks, from 13% to 26%. Utilities is the only sector that is unchanged. Every sector’s expected growth rate has increased for full-year 2021.

Summary / conclusion: It’s hard to fathom the strength of earnings these last 3 quarters, since the persistence of upward revisions and the y/y growth rates are pretty much unprecedented. In the late 1990’s it was all about Tech and large-cap growth, which pulled the SP 500 forward for the last 5 years of the century. and then the next decade, Tech (as a sector) was flat for 10 -12 years while commodities and emerging markets and the “old economy” sectors carried the SP 500 through to 2006 – 2007.

Having lived through the decade of 2000 – 2009, the worst cumulative 10-year return for the SP 500 since the 1930’s, and looking for reasons to be bearish, “peak growth rates” for the sectors with easy compares to 2020 today – like retail, like airlines, like Energy, like auto’s, like industrials – should start to see tougher compares after Q2 ’21.

And truthfully that doesn’t have to mean that you need to be bearish. It just means that starting in the July, August, September period, the stock market may not look as easy as it’s been.

The SP 500 itself is expecting 61% EPS growth and 17% (!) revenue growth versus Q2, ’20, and then the compares get tougher (and the expected growth rates are lower ) as we move through the 2nd half of 2021.

Does that mean Tech starts to reassert itself ? Maybe, if Tech’s relative growth starts to look better than the “old economy”.

Here’s what interesting though: Technology’s “expected” 2021 EPS growth rate coming into April was just 14%, well below the expected SP 500’s growth rate of 23%. It makes sense Tech has lagged. After Apple and Microsoft reported significant upside to Q1 ’21 EPS and revenue consensus, Tech’s expected ’21 growth rate jumped to 24%, BUT the SP 500’s expected EPS growth is now 34.7% for 2021.

Sometimes it’s about “relative” and not just absolute EPS and revenue growth.

We saw a weaker dollar late this week, and I’m hoping that means Emerging Markets starts to really generate alpha relative to the SP 500.

Have what I think is a good article coming up on what’s been left behind by the 11-year secular bull market in the SP 500.

That might be a good place to start shopping.

Remember, take everything you read here with substantial skepticism. Invest based on your own tolerance for risk and volatility. Even those who can get the market right for long periods can get it very wrong at the turn.

I thought Mr. Buffett was right last weekend when he remarked on this whole generation of new traders and investors. It seems easy now, but wait till you experience a 2000 – 2002 bear market (50% correction in SP 500) and then a 2008 within a few years of each other.

Its not the volatility of the late 1990’s that matters, but wait until you have 5, 7, or10 years like the 2000 – 2009 period where cumulatively, all your portfolio has done is earned the dividend on the SP 500. An entire decade of PE compression. See you much fun it is then…

Thanks for reading.



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