SP 500 Earnings Update: Not Much Will Change Until Q1 ’16 Earnings Start

Come Thursday, March 31, 2015, Thomson Reuters should publish the final Q4 ’15, bottom-up actual dollar earnings figure for the SP 500, thus we will know by Thursday night the exact full-year earnings number for the SP 500 for 2015.

The Friday morning, April 1, 2016, we will get March non-farm payrolls and by Friday night, from Thomson Reuter’s “This Week in Earnings” we should get the new “forward 4-quarter estimate” for the SP 500 that will be inclusive of the period from April 1 ’16 through March 31 ’17.

From the bigger picture earnings perspective, the way it stands today, is that 2015 full-year SP 500 of earnings growth of flat to -1%, could be followed by +2% – +3% in 2016, the lowest consecutive earnings growth rates for the SP since 2008 – 2009.

However, as noted here and here, thanks to tracking this data for the last 16 years, and writing this blog for the last 4 years, I continue to think that Q1 ’16 SP 500 earnings will be the nadir for the cycle. In other words, expect faster earnings growth going forward into 2016, but the degree of “growth”, management’s tenor and body language around guidance, and the leadership within the SP 500 are separate issues entirely.

Thomson Reuters earnings data (Source: “This Week in Earnings”):

Forward 4-quarter estimate: $120.14

PE ratio: 17(x)

PEG ratio: meaningless

SP 500 earnings yield: 5.90% versus last week’s 5.87%

Year-over-year growth of forward estimate: +0.36%, versus 1.08% last week.

Analysis / conclusion: It has now been two full quarters of earnings data since last mid-October ’15 when I thought that the “forward 4-quarter” estimate would start moving higher as the SP 500 Energy sector started to lap both the collapse in crude oil prices and the period of unusual strength in the US dollar, from October, 2014, to March, 2015.

That clearly hasn’t happened as the forward 4-quarter estimate remains barely positive.

The secondaries (in part) that have happened in the Energy sector in Q1 ’16 have driven the expected Energy sector earnings decline from -41% on January 1 ’16 to an expected -99% decline as of March 25th, 2016. Frankly I don’t expect Energy sector earnings to decline that much, and I do think that Energy earnings could also bottom in Q1 ’16. (Who’d ever thought that an expected 25% – 30% earnings decline for the Energy sector, would be wildly hoped-for good news.)

With commodity prices stabilizing, the dollar gradually weakening and US economic growth stronger-than-expected, I’m still expecting better returns for the SP 500 for the rest of 2016.

Technically, the SP 500 has more work to do. I will exhale when the SP 500 takes out the May ’15 and July ’15 highs near 2,135.

Looking at asset class returns for the last 15 years, “Commodities” have been the worst performing asset class the last 5 years running. Judging from the price action in Q1 ’16, that could be starting to change.


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