{"id":8341,"date":"2018-10-28T14:10:03","date_gmt":"2018-10-28T14:10:03","guid":{"rendered":"https:\/\/fundamentalis.com\/?p=8341"},"modified":"2018-10-29T19:51:54","modified_gmt":"2018-10-29T19:51:54","slug":"its-sp-500-revenue-growth-that-may-be-the-issue","status":"publish","type":"post","link":"https:\/\/fundamentalis.com\/?p=8341","title":{"rendered":"It&#8217;s SP 500 Revenue Growth That May be the Issue"},"content":{"rendered":"<figure id=\"attachment_8343\" aria-describedby=\"caption-attachment-8343\" style=\"width: 300px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/fundamentalis.com\/?attachment_id=8343\" rel=\"attachment wp-att-8343\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-8343\" src=\"https:\/\/fundamentalis.com\/wp-content\/uploads\/Q318SP500revgrowth-300x215.png\" alt=\"\" width=\"300\" height=\"215\" srcset=\"https:\/\/fundamentalis.com\/wp-content\/uploads\/Q318SP500revgrowth-300x215.png 300w, https:\/\/fundamentalis.com\/wp-content\/uploads\/Q318SP500revgrowth.png 587w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a><figcaption id=\"caption-attachment-8343\" class=\"wp-caption-text\">Click to enhance \/ enlarge<\/figcaption><\/figure>\n<p>&nbsp;<\/p>\n<p>David I. Templeton of Horan Capital Advisors out of Cincinnati, posted this Q3 &#8217;18 SP 500 revenue update to Twitter (@HoranCapitalAdvisors) on Saturday, October 27th, 2018.<\/p>\n<p>It&#8217;s important info, but to supplement David&#8217;s work, let&#8217;s take a look at 4th quarter &#8217;18 &#8220;expected&#8221; SP 500 revenue as well as 2019 SP revenue and more importantly, let&#8217;s see if there are any material changes to the sector growth rates based on Q3 &#8217;18 SP 500 earnings already released.<\/p>\n<p><em><strong>Q4 &#8217;18 expected SP 500 revenue growth rates by sector: (expected growth rates are as of 10\/26\/18 and then 9\/30\/18)\u00a0<\/strong><\/em><\/p>\n<ul>\n<li><em><strong>Energy:<\/strong><\/em> +15.6% vs 13.7%<\/li>\n<li><em><strong>Communications:<\/strong><\/em> +13.6% vs 12.6%<\/li>\n<li><em><strong>Real estate:<\/strong><\/em> 10.8% vs 10.7%<\/li>\n<li><em><strong>SP 500:<\/strong><\/em> 6.3% vs 6.3%<\/li>\n<li><em><strong>Industrials:<\/strong><\/em> 6% vs 6.6%<\/li>\n<li><em><strong>Health Care:<\/strong><\/em> 5.7% vs 5.8%<\/li>\n<li><em><strong>Basic Mat:<\/strong><\/em> 5.7% vs 5.7%<\/li>\n<li><em><strong>Consumer Disc:<\/strong><\/em> 5.5% vs 6%<\/li>\n<li><em><strong>Technology:<\/strong><\/em> 5.1% vs 5.2%<\/li>\n<li><em><strong>Financials:<\/strong><\/em> 4.6% vs 4.9%<\/li>\n<li><em><strong>Cons Staples:<\/strong><\/em> 2.4% vs 2.4%<\/li>\n<li><em><strong>Utilities:<\/strong><\/em> -4.7% vs -4.9%<\/li>\n<\/ul>\n<p>(Source: Factset Earnings Insight as of 10\/26\/18)<\/p>\n<p>With 240 of the SP 500 having reported Q3 &#8217;18 results, maybe more importantly, <em><strong>how have expected 2019 revenue growth rates by sector changed in the last 4 weeks<\/strong><\/em> ?<\/p>\n<ul>\n<li><em><strong>Comm Services:<\/strong><\/em> 9.6% vs 9%<\/li>\n<li><em><strong>Energy:<\/strong><\/em> 7.1% vs 5.7%<\/li>\n<li><em><strong>Consumer Disc:<\/strong><\/em> 6.3% vs 6.6%<\/li>\n<li><em><strong>SP 500:<\/strong><\/em> 5.4% vs 5.3%<\/li>\n<li><em><strong>Industrials:<\/strong><\/em> 5.4% vs 5.3%<\/li>\n<li><em><strong>Health Care:<\/strong><\/em> 5.3% vs 5.4%<\/li>\n<li><em><strong>Technology:<\/strong><\/em> 5.1% vs 5.3%<\/li>\n<li><em><strong>Real estate:<\/strong><\/em> 5% vs 5.1%<\/li>\n<li><em><strong>Financials:<\/strong><\/em> 4.1% vs 4.3%<\/li>\n<li><em><strong>Cons Staples:<\/strong><\/em> 3.4% vs 3.4%<\/li>\n<li><em><strong>Utilities:<\/strong><\/em> 3.1% vs 2.6%<\/li>\n<li><em><strong>Basic Mat:<\/strong><\/em> 2.8% vs 2.8%<\/li>\n<\/ul>\n<p>(Source: Factset Earnings Insight)<\/p>\n<p>What was surprising about the above data ?<\/p>\n<p>The SP 500 revenue growth rate for full-year 2019 actually ticked higher despite the market action. Still expected 5% revenue growth in 2019 is a material slowdown from what will likely be 8% revenue growth in 2018.<\/p>\n<p>Within the newly-created Communications Services sector (ETF XLC), Google and Facebook are roughly 39% of the XLC by market cap. They are the big dogs in the yard (sector) so let&#8217;s watch Facebook&#8217;s revenue estimate revisions after they report this week and see if the sector expected revenue growth rates change.<\/p>\n<p>Also, the fact that Energy has shown continued robust and &#8220;above-benchmark&#8221; revenue and EPS growth and still can&#8217;t get much traction in terms of sector performance is and has been puzzling.<\/p>\n<p>But the big surprise is that there haven&#8217;t been many material changes to the Q4 &#8217;18 and 2019 SP 500 revenue growth rates DESPITE the Nasdaq having its worst month since 2008 (as CNBC never tired of telling us last week).<\/p>\n<p>So what&#8217;s the point of all this ?<\/p>\n<p>Let&#8217;s look at historical <em><strong>SP 500 y\/y revenue growth rates<\/strong><\/em> since 2015:<\/p>\n<ul>\n<li><em><strong>Q3 &#8217;18:<\/strong>\u00a0+<\/em>7.6% (estimate as of 10\/26)<\/li>\n<li><em><strong>Q2 &#8217;18:<\/strong><\/em> +10%<\/li>\n<li><em><strong>Q1 &#8217;18:<\/strong><\/em> +7.3%<\/li>\n<li><em><strong>Q4 &#8217;17:<\/strong><\/em> +8%<\/li>\n<li><em><strong>Q3 &#8217;17:<\/strong><\/em> +6%<\/li>\n<li><em><strong>Q2 &#8217;17:<\/strong><\/em> +5.3%<\/li>\n<li><em><strong>Q1 &#8217;17:<\/strong><\/em> +7.7%<\/li>\n<li><em><strong>Q4 &#8217;16:<\/strong><\/em> +5%<\/li>\n<li><em><strong>Q3 &#8217;16:<\/strong><\/em> +2.7%<\/li>\n<li><em><strong>Q2 &#8217;16:<\/strong> <\/em>-0.2%<\/li>\n<li><em><strong>Q1: &#8217;16:<\/strong><\/em> -1.5%<\/li>\n<li><em><strong>Q4 &#8217;15:<\/strong><\/em> -4.1%<\/li>\n<li><em><strong>Q3 &#8217;15:<\/strong><\/em> -3.9%<\/li>\n<li><em><strong>Q2 &#8217;15:<\/strong><\/em> -3.4%<\/li>\n<li><em><strong>Q1 &#8217;15:<\/strong><\/em> -2.9%<\/li>\n<\/ul>\n<p>Q3 &#8217;18 revenue will see its first &#8220;sequential&#8221; slowdown from +10% in the q2 &#8217;18 to an expected 7% growth rate in Q3 &#8217;18, for the first time since mid 2017.<\/p>\n<p>Is that the market &#8220;issue&#8221; right now ? Could be &#8211; my own opinion is the US dollar is probably having an impact on SP revenue as it did from early &#8217;15 through early 2016. When crude oil started to collapse from $90 as of Q3 &#8217;14 to $28 by early &#8217;16, the dollar had one of its more dramatic periods of strengthening from late &#8217;14 through March &#8217;15 that impacted SP 500 revenue and EPS. The dollar&#8217;s strength has been far less robust this year but it has been trending higher over time.<\/p>\n<p><em><strong>Summary \/ conclusion: <\/strong><\/em>Let&#8217;s end with a hypothetical today: if SP 500 earnings growth is 10% in 2019 and revenue growth is 5%, is the SP 500 fairly valued at 2,658 ? Probably, at 15x forward earnings with an expected 10% SP 500 EPS growth rate in 2019, which already incorporates a slower expected SP 500 EPS growth rate given the lapping of the reduction in the corporate income tax rate, expectations have already factored in a slower 2019.<\/p>\n<p>Q2 &#8217;18 will likely be the peak for SP 500 revenue growth given the Fed rate hikes and the China trade issues, and I&#8217;d like to see both taken off the table in the next few months.<\/p>\n<p>But as readers can see from the Q4 &#8217;18 and 2019 Factset revenue expectations, the revisions to the forward revenue estimates are not (yet, anyway) very material.<\/p>\n<p>Given Apple&#8217;s weight in the SP 500 and the Tech sector, I do think how they guide for their fiscal &#8217;19 in terms of expected revenue growth will be important for the market. It could tell us much about China, trade and what is happening beneath the headlines. <a href=\"https:\/\/fundamentalis.com\/?p=8333\">Apple&#8217;s November 1 earnings release is critical<\/a>, and as was addressed Friday on this blog, the numbers look good.<\/p>\n<p>&nbsp;<\/p>\n<p><a href=\"https:\/\/fundamentalis.com\/?attachment_id=8348\" rel=\"attachment wp-att-8348\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-medium wp-image-8348\" src=\"https:\/\/fundamentalis.com\/wp-content\/uploads\/bespokeQ318SP500revgrowth-1-300x174.png\" alt=\"\" width=\"300\" height=\"174\" srcset=\"https:\/\/fundamentalis.com\/wp-content\/uploads\/bespokeQ318SP500revgrowth-1-300x174.png 300w, https:\/\/fundamentalis.com\/wp-content\/uploads\/bespokeQ318SP500revgrowth-1-768x446.png 768w, https:\/\/fundamentalis.com\/wp-content\/uploads\/bespokeQ318SP500revgrowth-1.png 853w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a><\/p>\n<p>&nbsp;<\/p>\n<p>We&#8217;ll leave readers a chart from Friday&#8217;s October 26th, 2018, Bespoke Report that displays graphically how the Q3 &#8217;18 SP 500 revenue &#8220;upside surprise&#8221; (or so-called &#8220;beat rate&#8221;) looks relative to history.<\/p>\n<p>Check the Factset 2019 expected SP 500 revenue growth rates by sector table: note how the SP 500 revenue growth rate ticked slightly higher for 2019 after the drubbing last week, and despite the lower beat rate.<\/p>\n<p>Perhaps the SP 500 revenue slowdown is already discounted in the market.<\/p>\n<p>Thanks for reading.<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>&nbsp; David I. Templeton of Horan Capital Advisors out of Cincinnati, posted this Q3 &#8217;18 SP 500 revenue update to&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":[114],"tags":[],"class_list":["post-8341","post","type-post","status-publish","format-standard","hentry","category-sp-500-revenue-growth"],"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\/8341","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=8341"}],"version-history":[{"count":7,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/8341\/revisions"}],"predecessor-version":[{"id":8352,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/8341\/revisions\/8352"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=8341"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=8341"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=8341"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}