Big Dispersion in YTD SP 500 Sector Returns ? SP 500 Forward Estimate Continues March Higher

Longtime readers that pay attention to SP 500 earnings know that the typical pattern for the “forward 4-qtr estimate” is that its high print usually occurs the first week of every quarter as the trailing quarter falls off and the next 4 quarters ahead get summed to create the new estimate.

After the new quarter starts and the high print occurs, the forward estimate usually starts to decline as sell-side pessimism and the natural conservatism of “estimate creation” results in downward pressure on quarterly sector estimates until actual earnings are seen.

What is amazing is that for 16 straight weeks, the “forward 4-quarter estimate” has increased sequentially, unprecedented since the spring of 2009 when the post-2008 Financial Crisis market lows were hit.

Since November 17, 2017, through this weekend of March 2nd, 2018, the forward 4-quarter estimate has increased every week from $142.30 to this week’s, $152.81.

The fact too is that the week from Nov 10, ’17 to Nov 17, ’17 saw just a $0.09 decline in the “forward 4-quarter estimate” from $142.39 to $142.30 so if we excluded a few weeks of small declines, the “streak” looks a lot longer.

This is a remarkable run for positive SP 500 forward estimate revisions.

Thomson Reuters data (by the numbers): (Source Thomson Reuters, “This Week in Earnings”) 

  • Fwd 4-qtr est: $158.21
  • P.E ratio: 17.0x
  • PEG ratio: 0.83x
  • SP 500 earnings yield: +5.88%
  • Year-over-year growth of fwd estimate: +20.57% vs last week’s +20.27%

(Source Thomson Reuters, “This Week in Earnings”) 

What might be even more interesting to me is that when the correction started or the SP 500 hit its peak on January 26th, the 10-year Treasury yield closed the week at 2.66%. So even with the nasty stock market correction and the very rapid 10% – 11% drop for the key benchmark, the 10-year Treasury yield has managed to rise to Friday’s close of 2.86%.

The 10-year Treasury yield has risen 20 bp’s since the market duress started.

Reader Arthur Ellis from Chicago has sent me some Street research on SP 500 earnings that im still digging through and need to do a separate post about.

We trimmed some Technology exposure coming into 2018 and added to clients Financial weighting and I’m still comfortable with that decision. Technology has performed well again for the first two months of 2018.

Here are the YTD sector returns for the SP 500 as of 2/28/2018: 

  • Technology: +7.45%
  • Cons Disc: +5.35% (heavily influenced by Amazon)
  • Financials: +3.22%
  • HealthCare: +1.63%
  • Industrials: +0.78%
  • Basic Mat: -1.59%
  • Cons Spls: -6.54%
  • Utilities: -7.36%
  • Telco: -7.65%
  • Energy: -8.01%
  • Real Estate: -8.77%
  • SP 500: +1.50%

Remember, Technology, Financials and Health Care are 53% of the SP 500 by market cap. That is why the SP 500 has a positive return YTD.

There is a 1,500 bp percentage difference between the best and worst performing SP 500 sector YTD in 2018. Seems quite large relative to last few years. Maybe the extraordinary calm of the last few years is now changing and volatility is rearing its ugly head.

The safety or dividend trade that was prevalent and worked well from 2009 to 2016 has been hammered.

There are 5 sectors that are down more than 5% YTD. Staples (WalMart hurt the sector badly) is the biggest sector with near a 10% market cap, Energy is roughly 7% – 8% market cap, while the rest of the sectors have a 3% market cap.

The source of the above data is S&P Dow Jones Indices written by Howard Silverblatt:

If you aren’t reading Howard Silverblatt’s work, you should be.

The commentary is my own.

Thanks for reading





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