{"id":4644,"date":"2015-03-22T15:37:59","date_gmt":"2015-03-22T15:37:59","guid":{"rendered":"https:\/\/fundamentalis.com\/?p=4644"},"modified":"2015-03-22T15:37:59","modified_gmt":"2015-03-22T15:37:59","slug":"more-on-sp-500-earnings-earnings-weight-vs-market-cap","status":"publish","type":"post","link":"https:\/\/fundamentalis.com\/?p=4644","title":{"rendered":"More on SP 500 Earnings: “Earnings Weight” vs “Market Cap”"},"content":{"rendered":"

Greg Harrison of Thomson Reuters was kind enough to shoot me T\/R’s table of the breakdown in SP 500 sectors, as delineated by earnings weight versus a sector’s market capitalization.<\/p>\n

As an Excel spreadsheet, this table is rich with potential for data analysis, but for now I’ll use it to talk about q1 ’15 earnings on top of yesterday’s Weekly Earnings Update<\/a>.<\/p>\n

Here is the table from Thomson and Greg Harrison:\u00a0FC – marketcapvsearningswt<\/a><\/p>\n

My goal for looking at this was to try and determine how the Energy sector should be weighted when looking at expected q1 ’15 earnings growth for the SP 500.<\/p>\n

With an earnings weight as of March 20th, ’15, for the Energy sector of 11.2%, versus the 10% I was using the last few weeks, from a pure math perspective, Energy’s drag on the SP 500 has been underestimated.<\/p>\n

Energy sector earnings growth as of Friday, March 20th, ’15, for Q1 ’15 \u00a0is -63.4%, so using 10% weight, a 6.3% drag was factored into previous estimates. Using the 11.2% weight, the actual drag is 7.1%.<\/p>\n

The 8\/10th’s of 1% difference probably doesn’t mean much given what is happening with the dollar, but the point is I cant see how Q1 ’15 estimated earnings growth for the SP 500, as it stands currently at -3.1% at Thomson, and Facset’s expected -4.8% drop, isn’t dramatically distorting the SP 500’s earnings picture.<\/p>\n

What complicates the analysis is that, when looking S&P’s Howard Silverblatt’s spreadsheet:SP500_EPS_DIV_ta2.xls (silverblatt)<\/a>, Howard is using a 4% – 5% operating earnings weight for the Energy sector, which is roughly half of Thomson Reuters weighting.<\/p>\n

In terms of earnings weight vs market cap, it is a point made before on this blog, but since Energy was just a 10% market cap weighting if that, in mid-2014, just prior to the collapse of crude oil prices, (maybe a little higher percentage), Energy’s weight was nowhere near the 33% where Technology maxed out in March, 2000 or Financial’s weighting in the SP 500 (close to 30%) in mid-2007, before the Mortgage Crisis hit, hence the Energy sector bear market has not translated into an SP 500 bear market.<\/p>\n

This is why – to be frank – I personally do not see a secular bear market in the SP 500. The two largest sector components, Technology and Financials, comprise 35% of the SP 500 by market cap, and 40% by earnings weight, and both sectors went through their secular bear markets last decade.<\/p>\n

Sector “earnings weight” within the SP 500 matters, but “market cap” within the SP 500 relative to earnings weight matters more.<\/p>\n

I do think by mid-May when the majority of the SP 500 has reported, Q1 ’15 earnings growth will not be as draconian as popular sentiment or commentary might be leading readers to believe.<\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Greg Harrison of Thomson Reuters was kind enough to shoot me T\/R’s table of the breakdown in SP 500 sectors,…<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,148,95,84,53,98,123],"tags":[],"class_list":["post-4644","post","type-post","status-publish","format-standard","hentry","category-earnings","category-earnings-weight-vs-market-cap","category-energy-sector","category-financial-sector","category-financials","category-sector-earnings-growth-estimates","category-technology"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/4644","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=4644"}],"version-history":[{"count":6,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/4644\/revisions"}],"predecessor-version":[{"id":4652,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/4644\/revisions\/4652"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=4644"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=4644"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=4644"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}