Energy and Basic Mat are just 10% of the SP 500, but commodities as an asset class have been at the bottom of the asset class return table for the last 5 years.<\/p>\n
However that began to change in February ’16.<\/p>\n
The “Great Rotation” talked about this Spring (here<\/a>) has begun to play out in earnest, and it looks like it will continue. Much of the rotation (I thought) would be catalyzed by a steady-to-slightly-weaker dollar, but even with the dollar’s strength post-Brexit, commodities, Emerging Markets, and the out-of-favor sectors didn’t give much back.<\/p>\n Even though the SP 500 was up just 1% in 2015 and now is up just 2% – 3% in 2016 YTD, the leadership groups are VERY different. FANG and large-cap growth led last year’s 1% return. This year it is large-cap value and bond proxies like Utilities, Telco, high-dividend large-cap, and moving off the bottom is the laggard groups like Energy, Basic Mat and commodities.<\/p>\n Readers won’t hear from the Energy and Basic Mat sectors until late July ’16. Usually Schlumberger (SLB) and Halliburton (HAL) report first in mid-July, which are the oil services giants. If readers own Exxon (XOM) and Chevron (CVX), you own roughly 25% – 40% earnings weight of the sector. (Long XOM small position. XLE, IYE in larger weights.)<\/p>\n Thomson Reuters (by the numbers):\u00a0<\/strong><\/em><\/p>\n Forward 4-quarter estimate: $122.76<\/p>\n PE ratio: 17(x)<\/p>\n PEG ratio: -7.50(x)<\/p>\n SP 500 earnings yield: 5.84%<\/p>\n Year-over-year growth of the forward estimate: -2%.<\/p>\n Analysis \/ conclusion: <\/strong><\/em>The forward estimate next week jumps to $127, which – if the spreadsheet is extended – means the y\/y growth rate of the forward estimate is still just 1.2%. The expectation was that readers would see higher year-over-year growth with the new forward 4-quarter estimate.<\/p>\n In order to see SP 500 “P.E expansion” my guess is that the year-over-year growth rate of the forward estimate must start to grow.<\/p>\n The drags on SP 500 earnings<\/a> are diminishing. Expect a decent quarter of results when SP 500 earnings start with Alcoa on July 11th.<\/p>\n Is Brexit a 5th drag on the SP 500 ? It certainly doesn’t help. Great Britain is the world’s 5th largest economy. It is another reason for management’s to guide cautiously in a market environment filled with reasons.<\/p>\n Watch the forward earnings and revenue estimates. They are the true “tale of the tape”.<\/p>\n I do think Q1 ’16 will – in hindsight – be the bottom for SP 500 earnings, and that the 2nd quarter, will see much better numbers, and thought that three months ago<\/a>, and here<\/a> as well.<\/p>\n <\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" Energy and Basic Mat are just 10% of the SP 500, but commodities as an asset class have been at…<\/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":[97,3,89,171,95,141],"tags":[],"class_list":["post-6038","post","type-post","status-publish","format-standard","hentry","category-basic-materials","category-earnings","category-earnings-estimate-revisions","category-energy-etfs-xle","category-energy-sector","category-growth-v-value"],"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\/6038","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=6038"}],"version-history":[{"count":6,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/6038\/revisions"}],"predecessor-version":[{"id":6044,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/6038\/revisions\/6044"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=6038"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=6038"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=6038"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}