SP 500 Earnings: Will MegaCap Earnings Support the SP 500 Breakout ?

Friday, January 19th, 2024, saw the first trade above the January ’22 high of 4,815, with the SP 500 ultimately closing at 4,839.81, or the first all-time-high in 24 months.

The all-time-high came on no new economic data, or critical earnings from a key SP 500 component, or really anything of note, external to the market.

Some pundits complained market breadth looks a little less supportive, which for this blog is always a key metric. Still, significant rallies can occur on lower volume and weaker breadth, particularly when the market leadership is as narrow as it is now.

The data point received very little media coverage but the QQQ’s (Nasdaq 100 ETF) hit an all-time-high of 408.71 in mid-to-late November ’21, and then made a new all-time-high in late December ’23, and closed out this past week at 421.18. That’s another plus for stocks, but

The Nasdaq Composite, is still below it’s all-time-high from mid-to-late November ’21 of 16,212.23. The Comp closes yesterday at 15,310.97 or roughly 900 points below the old all-time-high.

While it’s detail readers wouldn’t normally care about or catch, it seems like the mega-cap tech names earnings releases are moving further and further out the calendar each quarter. This week, I’ll be watching Netflix (NFLX), Tesla (TSLA), IBM, (IBM), Visa (V), Intel (INTC) and for entertainment purposes, AT&T. AT&T senior unsecured debt is still rated BBB+ by S&P, and A2 by Moody’s. The telecom giant still has life, but i still fight with them over everything. (Found out recently I’m still paying for AT&T internet service that was cancelled a year ago. Service number doesn’t work, go into AT&T stores and the staff can’t help or their support numbers don’t work.)

IBM and Intel are quite interesting: the return of “old tech”. IBM was up 2% yesterday on 50% heavier-than-average volume. Intel rose 3% yesterday on 20% heavier-than-average volume. IBM hasn’t made a new all-time-high since April, 2013. Intel hasn’t made a new a new all-time-high since September, 2000, when it peaked at $75.01. Intel’s entry into the foundry business is interesting, and they are quickly lining up customers, but foundry is still a very small part of Intel’s overall revenue and operating income. IBM like every other large-cap tech company is likely to tout it’s move into AI but IBM has touted highlighted concept technology developments in the past – like Watson – only to see it fizzle.

SP 500 data: 

  • The forward 4-quarter estimate (FFQE), fell this past week to $242.92, from $243.52;
  • The PE ratio this week ended at 19.9x versus last week’s 19.6x;
  • The SP 500 earnings yield moved down to 5.02%, still too low in my opinion, but the breakout in the SP 500 this week, somewhat dampens the overall EY importance. Remember, the EY can move up with higher forward EPS, and / or a lower SP 500. It doesn’t always take just the SP 500 correcting, to improve the EY;
  •  The “upside EPS surprise” for the roughly 75 odd companies that have reported their Q4 ’23 results improved to 3.7% this week, while the “upside revenue surprise” to 0.5%. It’s probably a worthy debate to have discussing the importance of “EPS upside surprises” versus “revenue upside surprises” but EPS surprises suggests expense discipline, while revenue surprises suggests an overall healthy business climate. I like ’em both, but i’d weight revenue upside more importantly than EPS upside. (That’s only an opinion).
  • Per the Refinitiv data, another 61 companies are expected to report this week, but looking at Briefing.com’s scheduled earnings reporting detail, there seems like 3x that number of companies that will report. My guess is that Refinitiv is only counting the SP 500 components, while I suspect Briefing.com is given readers all small and mid-companies too.

Summary / conclusion: Microsoft (MSFT) doesn’t report until January 30 ’24, and with the launch of CoPilot, it will finally allow the mega-cap analysts to start to quantify “AI” and what it means for growth and cash-flow. Listening to Dan Ives, the legendary technology analyst, AI will be bigger than the internet, which is a powerful statement to say the least. The fact that Microsoft has broken out to an all-time-high before the SP 500 did it on Friday, January 19th, 2024, to me is a positive for the stock.

The Nasdaq Composite breaking above it’s November ’21 high of 16,200 will be the next important technical test. I’m guessing of that does happen it portend positively for small and mid-caps (SMID) too. The SMID space may not keep up with the mega-caps, but at least readers would likely see positive returns for the equity asset classes.

The tech sector is expected to generate 16% EPS growth in 2024, and that’s been fairly constant for a while, better than the SP 500’s expected 10.9% expected EPS growth for 2024.

This blog will have a few more posts this weekend.

None of this is advice or a recommendation. Past performance is no guarantee or suggestion of future results. All SP 500 EPS and revenue data is sourced from IBES data by Refinitiv. Capital markets change quickly for both the good and the bad. Readers should evaluate their own comfort level with portfolio volatility and adjust accordingly.

Thanks for reading.


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