here<\/a>) detailed this week, the typical “beat rate” or “upside surprise” between “actual” and “expected” SP 500 earnings growth is 3% – 4% historically.<\/p>\nHere is a comparison of Q1 ’17 expected earnings growth<\/strong><\/em>\u00a0(first column) by sector vs Q1 ’16 actual sector earnings growth (second column):<\/p>\n\n- Cons Disc:<\/strong><\/em> -1.4% vs +24.3%<\/li>\n
- Cons Spls:<\/strong> <\/em>+2.6%, vs +1.5%<\/li>\n
- Energy:<\/strong><\/em> +604%, vs -105%<\/li>\n
- Financials:<\/strong><\/em> +15.4% vs -10.4%<\/li>\n
- Health Care:<\/strong><\/em> +2.8%, vs +9.3%<\/li>\n
- Industrials:<\/strong><\/em> -5.7%, vs +0.3%<\/li>\n
- Basic Mat:<\/strong><\/em> +14.8%, vs -12.1%<\/li>\n
- Technology:<\/strong><\/em> +14.7% vs -4.1%<\/li>\n
- Telco:<\/strong><\/em> -3.1%, vs +8.5%<\/li>\n
- Utilities:<\/strong><\/em> +0.8% vs -4.3%<\/li>\n
- Real Estate:<\/strong><\/em> +1.6%<\/li>\n
- SP 500: +10.1% vs -5.0%\u00a0<\/strong><\/em><\/li>\n<\/ul>\n
Source: Thomson Reuters I\/B\/E\/S and internal spreadsheet<\/p>\n
Comparing expected revenue growth<\/strong><\/em> for Q1 ’17 (first column) vs actual revenue growth for Q1 ’16 (second column):<\/p>\n\n- Cons Disc:<\/strong><\/em> +4.7% vs. +6.5%<\/li>\n
- Cons Spls:<\/strong><\/em> +1.4%, vs. +1.5%<\/li>\n
- Energy:<\/strong><\/em> +36.1% vs. -29.6%<\/li>\n
- Financials:<\/strong><\/em> +7.5%, vs -1.2%<\/li>\n
- Health Care:<\/strong><\/em> +6.1%, vs. +9.5%<\/li>\n
- Industrials:<\/strong><\/em> +2.4%, vs -1.0%<\/li>\n
- Basic Mat:<\/strong><\/em> +6.3%, vs. -7.2%<\/li>\n
- Technology:<\/strong> <\/em>+7.2%, vs -6.1%<\/li>\n
- Telco:<\/strong> <\/em>-1.9%, vs +11.2%<\/li>\n
- Utilities:<\/strong><\/em> +8.5%, vs -9.8%<\/li>\n
- Real Estate:<\/strong> <\/em>+3.2% vs.<\/li>\n
- SP 500:<\/strong> <\/em>+7% vs. -1.7%<\/li>\n<\/ul>\n
Source: Thomson Reuters I\/B\/E\/S and internal spreadsheet<\/p>\n
Note the earnings and revenue growth disparities with the Energy sector, the Financial sector and even the Technology sector.<\/p>\n
This is really the story of Q1 ’17: if we treat the benchmark like “2-year comp’s” from the retail sector, just averaging the Q1 ’16 and expected Q1 ’17 numbers leaves investors with more normal looking growth rates for Q1 ’17.<\/p>\n
Here are a couple more metrics to note:<\/p>\n
\n- Financial sector revenue growth expected at +7.2% – if the Financial sector is to follow-through on the post election bounce and the outstanding returns from Q4 ’17, revenue growth must be greater than the “low single digits” that the sector has seen since 2012.<\/li>\n
- Basic Materials too: the commodity bounce and the range-bound dollar has the Basic Materials sector looking for its best revenue growth at +6.3% since – well – since I started tracking the sector data in Q4 ’12.<\/li>\n
- Telecom: note the strong comp from Q1 ’16 for Telco earnings and revenue growth. Telecom as a sector now officially oversold – one of the few SP 500 sectors to be so.<\/li>\n<\/ul>\n
Here is one final SP 500 “expected” earnings growth data point so readers aren’t overwhelmed with the stats:\u00a0<\/strong><\/em><\/p>\nSP 500 Expected full-year 2017 Earnings Growth by sector, as of 4\/7\/17 and as of Jan 1 ’17.<\/p>\n
\n- Cons Spls:<\/strong><\/em> +6.7%, vs. +9.3%<\/li>\n
- Cons Disc:<\/strong><\/em> +6.0%, v.s +7.3%<\/li>\n
- Energy:<\/strong><\/em> +418%, vs. +357%<\/li>\n
- Financials:<\/strong><\/em> +12.7% vs. +11.3%<\/li>\n
- Health Care:<\/strong> <\/em>+4.7%, vs +8.6%<\/li>\n
- Industrials:<\/strong><\/em> +4.7% vs. +4.9%<\/li>\n
- Basic Materials:<\/strong><\/em> +13.3% vs. +15.5%<\/li>\n
- Technology:<\/strong><\/em> +10.5%, vs +12.1%<\/li>\n
- Telecom:<\/strong><\/em> +0.4%, vs +3.4%<\/li>\n
- Utilities:<\/strong><\/em> 0%, vs 0.3%<\/li>\n
- Real Estate:<\/strong><\/em> +2.8% vs. +6.5%<\/li>\n
- SP 500: +11.0% vs +12.5%\u00a0<\/strong><\/em><\/li>\n<\/ul>\n
What this comparison is telling us is the degree to which full-year 2017 expected earnings growth by sector has changed since Jan 1 ’17.<\/p>\n
Only Energy and Financial’s are expecting stronger earnings growth as of 4\/7\/17 versus Jan 1 ’17. This means analysts are feeling more confident and have lifted estimates for these sectors for the full-year 2017.<\/p>\n
Analysis \/ conclusion:<\/strong><\/em> While we are seeing the typical snarky comments to expected double-digit earnings growth for the SP 500 for Q1 ’17, the fact is a lot of the growth is against the weak Q1 ’16 compare. In terms of Q1 ’17 stock performance, the Energy sector fell 6.7%, while the Financial sector rose 2.5%, dramatically under-performing the SP 500’s 6.1% return.<\/p>\nClient’s remain overweight Technology, Financial’s and Energy heading into Q2 ’17. These weightings can change anytime and for any reason.<\/p>\n
Thanks for reading.<\/p>\n
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