SP 500 Earnings – Which Sector’s Growth Rates Have Seen Less Downward Pressure for Q2 ’19

First, let’s get to the SP 500 Earnings metrics missed this weekend:

  • Fwd 4-qtr est: $171.52 vs $171.47
  • PE ratio: 16.7x
  • PEG ratio: 3.63x
  • SP 500 earnings yld: 5.97% vs. last week’s 6.23%
  • Y/y growth of Fwd est: +4.7% vs last week’s +4.66%

(Source: earnings data from IBES by Refinitiv, the calculations are my own)

There have been only two weeks this quarter where the “forward 4-quarter estimate” increased sequentially, the first week was April 26th, when the estimate jumped $0.26 and then this week, where the forward 4-quarter estimate improved $0.05 (yes, a whopping five cents) sequentially, but the forward growth rate improved from 4.66% to 4.7% as well.

With all the headlines around China, trade wars and tariffs, Mexico, the Fed, etc. etc. don’t forget about SP 500 earnings.

The 2020 EPS estimate for the SP 500 has been rock solid expecting 12% earnings growth next year, and that hasn’t changed in 19 weeks.

A quick peek into Q2 ’19 sector growth rates – which sectors have held up the best ? 

As it stands as of last weekend, the SP 500 is expecting flat earnings growth for Q2 ’19, lapping the toughest comp’s from 2018’s “tax-cut-aided” growth last year.

Here are the sectors with growth rates that have held up well during the period where the negative revisions are usually the heaviest:

  • Energy: -0.3% as of June 7th, versus an expected -8.9% growth rate as of April 1;
  • Financials: +6.1% as of June 7th, versus 7% as of April 1;
  • Hlth Care: +2.8% as of June 7th, vs +3% as of April 1;
  • Comm Serv: +16.4% as of June 7th vs +17.6% as of April 1;
  • Utilities: +2.4% as of June 7th vs +1.9% as of April 1;

Long-term readers probably remember that the heaviest period of negative revisions to sector growth rates is usually the quarter of the reports, meaning that for Q2 ’19 earnings, the April, May, June period usually sees the heaviest negative revisions. The sectors above are seeing relatively more stability to their expected growth rates, and for Utilities and Energy, the growth rates have been raised.

Energy is shocking to me since the price of crude was down sharply in May ’19, along with the rest of the equity market.

The Technology sector has seen lower growth rates from -5.8% as of April 1 to -8.2% as of June 7th.

The Communications sector deserves a closer look given its expected 16% growth rate, easily the highest of the 11 SP 500 sectors for Q2 ’19.

Thanks for reading.


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