{"id":7102,"date":"2017-08-13T15:55:46","date_gmt":"2017-08-13T15:55:46","guid":{"rendered":"https:\/\/fundamentalis.com\/?p=7102"},"modified":"2017-08-13T15:55:46","modified_gmt":"2017-08-13T15:55:46","slug":"whatever-markets-issues-sp-500-earnings-are-definite-positive","status":"publish","type":"post","link":"https:\/\/fundamentalis.com\/?p=7102","title":{"rendered":"Whatever Market&#8217;s Issues, SP 500 Earnings Are Definite Positive"},"content":{"rendered":"<p>The spike in the VIX this week, brought out the various market statisticians that talked about &#8220;forward returns&#8221; around the SP 500 after such a spike, and it portends favorably for the key benchmark.<\/p>\n<p>That being said, if the SP 500 does run into a bigger drawdown, for whatever reason, the SP 500 earnings data is an unquestionable positive halfway through the third quarter.<\/p>\n<p>Yesterday, it was <a href=\"https:\/\/fundamentalis.com\/?p=7098\">written on this blog<\/a> that the &#8220;forward 4-quarter&#8221; estimate is at a 5-year high. Still not over 10%, but close. Looking at the year-over-year growth of the forward estimate, for the last 5 years around mid-August, here is the trend:<\/p>\n<ul>\n<li><em><strong>8\/11\/17:<\/strong><\/em> +9.87%<\/li>\n<li><em><strong>8\/12\/16:<\/strong><\/em> +1.47%<\/li>\n<li><em><strong>8\/14\/15:<\/strong><\/em> -1.82%<\/li>\n<li><em><strong>8\/15\/14:<\/strong><\/em> +9.40% (just prior to the drop in crude oil from $100 to $28)<\/li>\n<li><em><strong>8\/30\/13:<\/strong><\/em> +7.02%<\/li>\n<\/ul>\n<p>At no point absent the inflated earnings growth in 2009 and early 2010 following the 2008 Financial \/ Mortgage \/ Credit Crisis has the &#8220;forward 4-quarter estimate y\/y growth&#8221; remained above 10% for any length of time. We&#8217;ll see if it can get there in the next two quarters.<\/p>\n<p>Frankly SP 500 earnings growth rates now lap the increase in the price of crude oil in Q3 and Q4 &#8217;16, so the back half of 2017 might not see consistent 10% growth, but it will be close.<\/p>\n<p><em><strong>Estimate revisions: <\/strong><\/em><\/p>\n<p>&nbsp;<\/p>\n<figure id=\"attachment_7105\" aria-describedby=\"caption-attachment-7105\" style=\"width: 300px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/fundamentalis.com\/?attachment_id=7105\" rel=\"attachment wp-att-7105\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-7105\" src=\"https:\/\/fundamentalis.com\/wp-content\/uploads\/SP500epsestrevs8132017-300x169.png\" alt=\"\" width=\"300\" height=\"169\" srcset=\"https:\/\/fundamentalis.com\/wp-content\/uploads\/SP500epsestrevs8132017-300x169.png 300w, https:\/\/fundamentalis.com\/wp-content\/uploads\/SP500epsestrevs8132017-768x432.png 768w, https:\/\/fundamentalis.com\/wp-content\/uploads\/SP500epsestrevs8132017-1024x576.png 1024w, https:\/\/fundamentalis.com\/wp-content\/uploads\/SP500epsestrevs8132017.png 1920w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a><figcaption id=\"caption-attachment-7105\" class=\"wp-caption-text\">Click to enlarge<\/figcaption><\/figure>\n<p>&nbsp;<\/p>\n<p>Note the upward \/ downward revisions during earnings season both for Q1 and Q2&#8217;17, again partially due to easier comp&#8217;s with 2016, but SP 500 earnings are remarkably sanguine.<\/p>\n<p><em><strong>Technology estimates:\u00a0<\/strong><\/em><\/p>\n<p>Technology is the largest sector within the SP 500 at 22% &#8211; 23% of the market cap of the benchmark.<\/p>\n<p>Here is how Technology sector &#8220;expected&#8221; earnings growth rates for the next three quarters:<\/p>\n<ul>\n<li><em><strong>Q3 &#8217;17:<\/strong><\/em> from 9% expected growth on July 1 &#8217;17 to +9.7% expected growth on August 11, &#8217;17<\/li>\n<li><em><strong>Q4 &#8217;17<\/strong><\/em>: from +10.4% as of July 1 &#8217;17 to +10.9% as of August 11, &#8217;17<\/li>\n<li><em><strong>Q1 &#8217;18:<\/strong><\/em> From +10.7% as of July &#8217;17 to +11.9% as of August 11, &#8217;17<\/li>\n<\/ul>\n<p>The typical pattern as we approach forward quarters is that earnings revisions are usually LOWER, but the fact that Technology earnings have been revised higher in the last 6 weeks &#8211; probably on the back of Apple&#8217;s report (long AAPL), portends favorably for Tech&#8217;s relative strength in the back half of 2017. Tech has traded flat since early June &#8217;17, but given the earnings data, i would expect Tech to assert its leadership role as we move into the back half of &#8217;17. (That&#8217;s an educated guess, not an ironclad certainty.)<\/p>\n<p>Financial&#8217;s and Health Care sectors have seen slight downward negative revisions, about what would be expected as a normal pattern.<\/p>\n<p>Hence Technology stocks out. Apple&#8217;s fiscal Q3 &#8217;17 probably has a lot to do with Technology&#8217;s earnings revisions.<\/p>\n<p>Remember, <a href=\"https:\/\/fundamentalis.com\/?p=7072\">&#8220;market cap&#8221; matters<\/a> in the SP 500 in terms of where you want to invest relative to the benchmark.<\/p>\n<p><em><strong>Analysis \/conclusion: <\/strong><\/em>Client remain overweight Technology and Financial&#8217;s in terms of sector overweights, and Health Care is being built slowly primarily through biotech ETF&#8217;s. Apple and Tesla (long both) are acting \/ trading very well after their earnings reports. Amazon (long AMZN) looks very weak &#8211; technicians have raised red flags over the trading action, and the stock could see a sharp drawdown, but longer-term, the fundamentals should be fine.<\/p>\n<p>There is more than can be written, but I want the post digestable and readable for blog followers.<\/p>\n<p>Thanks for reading.<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The spike in the VIX this week, brought out the various market statisticians that talked about &#8220;forward returns&#8221; around the&hellip;<\/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":[89,92,194],"tags":[],"class_list":["post-7102","post","type-post","status-publish","format-standard","hentry","category-earnings-estimate-revisions","category-fwd-4-qtr-growth-rate-sp-500","category-market-cap-weights"],"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\/7102","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=7102"}],"version-history":[{"count":5,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/7102\/revisions"}],"predecessor-version":[{"id":7108,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/7102\/revisions\/7108"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=7102"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=7102"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=7102"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}