According to Thomson Reuters, “This Week in Earnings” dated 5/30/14, the forward 4-quarter estimate for the SP 500 fell to $123.06 from last week’s $123.08.
The p.e ratio on the forward estimate is 15.6(x).
The PEG ratio as of Friday’s close is 1.83(x), well below last year’s average of 2.50(x).
The earnings yield on the SP 500 is 6.40%, for all you Fed model fans.
The year-over-year growth rate on the SP 500 is 8.54%, up again from last week’s 8.51%.
Analysis / Commentary: with first quarter earnings growth for the SP 500 increasing at a robust 5.5% per Thomson Reuters, the weather, Venezuela, Ukraine and currency-impaired quarter came in pretty strong in terms of SP 500 earnings. More importantly, the expectation for q2 ’14 SP 500 earnings are looking pretty decent, as Thomson notes this week, “one reason for the smaller downward revisions for q2 ’14 is the guidance sentiment. Earnings guidance is less negative than it has been for the last several quarters.” We tipped off readers to this in the last week here, when John Butters of Factset noted that the 2nd quarter’s growth rate reductions were less than what was typical at this point in the quarter.
The current expected y/y growth for the SP 500 earnings for q2 ’14 is +7%, down from 8.5% as of April 1, per Thomson Reuters. That is a firmer growth rate and less erosion than we see normally.
Here are the expected sector growth rates for q2 ’14 for each sector as of Friday, May 30th, and as of April 1,’14:
Telecom: +12.8%, +12.4%
Energy: +12.4%, +12.7%
Materials: +12.3% +18%
Technology: +11.5%, +13.7%
HealthCare: +8.2%, +6.0%
Industrials: +8.1%, +7.7%
Cons Disc: +6.7%, +10.8%
Cons Spls: +5.5%, +7.6%
Utilities: -0.1%, +2.3%
Fincl’s: -0.4% +1.7%
SP 500: +7%, +8.5%
As the reader can quickly see, the sectors we highlighted have seen higher expectations for growth rates today, relative to April 1, thus from a relative strength perspective, you might see Health Care and Industrials outperform, particularly if we see a correction this summer. Basic Materials has seen sharp downward revisions, but note the absolute growth expectations for the sector at +12.3%, versus the SP 500’s 7%.
Whatever ails this market and the sentiment of guys like David Tepper and such, it isn’t SP 500 earnings. Still, we have been telling clients we are overdue for another correction, and with no change on the earnings front, 5% to 10% would be perfect.
Thanks for reading and checking in. Enjoy your weekend.
Trinity Asset Management, Inc. by:
Brian Gilmartin, CFA
Portfolio manager