Here is the expected (and actual) EPS and revenue growth for the Technology sector:
- Q4 ’19: +11.3%, +5.6% (est)
- Q3 ’19:+9.6%, +5.6% (est)
- Q2 ’19: +5%, +4.8% (est)
- Q1 ’19: +6.8%, +5.1% (est)
- Q4 ’18: +13.8%, +5.3% (est)
- Q3 ’18: +20.5%, +9.2% (est)
- Q2 ’18: +28.9%, +12.2%
- Q1 ’18: +36.5%, +16.2%
- Q4 ’17: +20.1%, +13.3%
- Q3 ’17: +24.2%, +10.4%
- Q2 ’17: +18.2%. +9.3%
- Q1 ’17: +19.8%, +7.2%
- Q4 ’16: +12.7%. +7.3%
- Q3 ’16: +11.5%, +5.1%
- Q2 ’16: +1.7%, -3%
- Q1 ’16: -4.1%, -6.1%
Source: Refinitiv IBES consensus estimates as of 10/22/18
Summary / conclusion: SP 500 earnings growth is expected to slow to 10% in calendar, 2019, and the numbers have been telling investors that for quite some time, as this blog discussed here.
I don’t think this is the reason behind this market downdraft that started October 1 ’18, but we’ll see. China is a growing issue – their growth has slowed and that has to come home to roost in US earnings at some point if it hasn’t already,.
Companies give some idea of next year’s guidance starting with the 3rd quarter earnings reports every year, but the real or hard guidance occurs with the January – February conference calls that contain 4th quarter results.
If we average the above 2019 results, the Tech sector – over the 4 quarters – is expected to average 8.2% EPS growth and 5% revenue growth, inline with the SP 500’s expected average of 9% EPS growth and 5% revenue growth.
As we lap the corporate income tax rate reduction of 2018, the 2019 comp’s will be tougher, and the SP 500 will show slower growth, which we’ve known for months. Technology looks to be expecting slower growth as well, but is inline with the SP 500.
However, much depends on Apple’s results next week, with their fiscal Q4 ’18 results.
Tech has just finished a 6-quarter or 18-month growth cycle, coming out of 2015 and 2016.
I worry more about the inevitable rotation from Growth and Momentum. That will likely depress Tech multiples and set readers up for an opportunity to overweight Tech.
Client’s Tech weighting was reduced this summer to roughly 18% – 22% (and account weights can vary), which was a little early, but looks better now. After the creation of the Communications sectors, Technology’s market cap weighting within the SP 500 fell to 20%.
Thanks for reading.