{"id":4279,"date":"2014-11-08T01:06:31","date_gmt":"2014-11-08T01:06:31","guid":{"rendered":"https:\/\/fundamentalis.com\/?p=4279"},"modified":"2014-11-08T01:06:31","modified_gmt":"2014-11-08T01:06:31","slug":"11-7-14-sp-500-weekly-earnings-update-energy-and-basic-material-downward-revisions-exerting-pressure-on-forward-estimates","status":"publish","type":"post","link":"https:\/\/fundamentalis.com\/?p=4279","title":{"rendered":"11.7.14: SP 500 Weekly Earnings Update: Energy and Basic Material Downward Revisions Exerting Pressure on Forward Estimates"},"content":{"rendered":"

Per Thomson Reuters, This Week in Earnings, the forward 4-quarter estimate for the SP 500 closed this week at $126.77, versus last week’s $127.04.<\/p>\n

After the 70 bp increase in the SP 500 this week, the p.e ratio<\/strong> <\/em>using the forward estimate\u00a0is 16(x), slightly higher than the 5 and 10-year average p.e on the SP 500, per Factset.<\/p>\n

PEG ratio:<\/strong><\/em> 2.10(x), a sharp jump from the 1.6(x) – 1.7(x) range we saw over the summer and for most of 2014, and you’ll see why in a minute.<\/p>\n

Earnings yield:<\/strong><\/em> 6.24%<\/p>\n

The year-over-year change in the forward growth rate fell to 7.63% this week, from last week’s 7.87%.<\/p>\n

Analysis \/ commentary: <\/strong><\/em>Energy is 12% of the SP 500 by market cap weight, while Basic Materials is 3%, thus if you take the two sectors together, 15% of the SP 500 is seeing heavy downward revisions of forward earnings estimates.<\/p>\n

Energy:<\/strong> <\/em>the 5-week change in earnings growth for the Energy sector for just q4 ’14 is a whopping 1,350 basis points negative, from an expected +6.6% on October 1, to -6.9% as of November 7th;<\/p>\n

Energy: for full-year 2015, the Energy sector’s expected earnings growth has declined a negative 870 basis points, from +6.9% as of October 1 to -1.8% as of November 7th;<\/p>\n

Basic Materials:<\/strong><\/em> the 5-week change in earnings growth for the Basic Materials sector for just q4 ’14 is a negative 990 basis points, from +10% as of October 1, to +0.1% as of November 7th;<\/p>\n

Basic Materials: for full-year 2015, the Basic Mat’s expected earnings growth has declined from +19.1% as of October 1 to +16% as of November 7th;<\/p>\n

For just the 4th quarter alone, Energy – according to my math – is having a 160 bp drag on the SP 500 as a whole. Thus the current 7.6% expected growth rate for q4 ’14 as of November 7th, should be closer to 9.2%.<\/p>\n

With\u00a0Basic Materials\u00a0990 basis point drag for q4 ’14,\u00a0with just a 3%\u00a0market cap weight, the drag for just the Basic Mat sector looks to be pretty miniscule at les than 1\/2 of 1%,\u00a0but add the two sector together and you get almost a 200 bp or 2% drag on the SP 500 for q4 ’14.<\/p>\n

Thus, 53% of the drop in the q4 ’14 expected growth rate, for the SP 500 can be explained by the 190 basis point drag of Energy and Basic Materials.<\/p>\n

Mathematically:<\/p>\n