SP 500 Earnings Update: How have 2019 Sector Growth Rates Changed in Last 8 Weeks ?

“Worst Week for Stock Markets since Christmas” (presumably Christmas ’18).

The headline is a Bloomberg quote caught while prepping the weekly SP 500 earnings update, Saturday morning, June 1st.

From a sentiment perspective, it does now seem like absolutely no one is bullish.

These are tough markets to navigate when futures can drop 200 – 300 points on a President Trump tweet. Headlines are driving the action.

What’s worse – keeping one eye on Bloomberg as this is being written – President Trump announced (and I’m not sure when) that India has lost it’s “developing nation” status since – according to President Trump – India has not sufficiently opened their markets to US products and manufacturers.

So both Mexico and India have would up in the (Pres) Trump tariff tantrum corner.

Here is an update on SP 500 Earnings as of 5/31/19 (Source: IBES by Refinitiv):

  • Fwd 4-qtr estimate: $171.47 vs last week’s $171.60
  • PE ratio: 16x
  • PEG ratio: 3.5x
  • SP 500 earnings yield: 6.23% vs last week’s 6.07%
  • Year-over-year growth of fwd est: +4.66% vs last week’s 4.76%

Summary / conclusion: May ’19 was quite brutal for the SP 500 as the key benchmark is now down 4.5% year-to-date, and both the SP 500 and the Nasdaq ended the week of May 31 and the month of May ’19 below their respective 200-day moving averages, although the SP 500 is now further below than the Nasdaq Composite and the Nasdaq 100.

While the likely effects of the China tariff’s are not yet in the SP 500 earnings numbers, the uncertainty and the rhetoric are making CEO’s and corporate board’s nervous and that usually makes them cautious, thus undoing the potentially positive effects of the tax cuts and the TC&JA.

Go figure. I just don’t get it, particularly the latest Mexico shot across-the-bow.

While vocal and actively-Democratic CEO’s such as Lloyd Blankfein support the President’s China initiatives, particularly the IP transfer and technology protections, and many American’s understand the security implications of Huawei, the headlines and the uncertain comments by Secretary Mnuchin and TR Lighthizer around Mexico only add to the uncertainty of the blaring headlines.

How have full-year 2019 SP 500 Sector growth rates changed the last 8 weeks or since April 1, ’19 ?

Sectors which are now expecting faster EPS growth in 2019: 

  • Consumer Discretionary: improved from 6.8% to 6.9% the last 8 weeks;
  • Energy: -8.8% today vs-11% as of April 1; (truly a surprise given the drop in crude.)
  • Financials: +9.4% today vs +8.8% on April 1;
  • Health Care: +6.1% today, vs +5.5% on April 1;
  • Real Estate: +4.3% today vs +3.8% as of April 1;
  • Info tech: -1.9% today vs -1.9% on April 1; (We’ll call that a win, given Apple’s issues)

Source: IBES by Refinitiv

Remember too this is an “expected” improvement for calendar 2019, not just the higher expected growth for Q1 ’19 after earnings reports.

Tech, Financials, Health Care and Consumer Discretionary are 47% of the SP 500 (roughly) by market cap.

Energy is roughly now 5% of the SP 500 by market cap, way down from its 14% – 15% highs in August, 2014, just before crude oil started unraveling from $100 per barrel.

It’s hard to find good news with the headlines and price action, but SP 500 earnings trends are just not that bad (yet).

Portfolio’s are being positioned more defensively with the SP 500 below the 200-day moving average.

Thanks for reading.

 

 

 

 

 

 

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