{"id":8816,"date":"2019-03-30T13:37:21","date_gmt":"2019-03-30T13:37:21","guid":{"rendered":"https:\/\/fundamentalis.com\/?p=8816"},"modified":"2019-04-05T17:05:08","modified_gmt":"2019-04-05T17:05:08","slug":"will-sp-500-earnings-bottom-with-q1-19s-results","status":"publish","type":"post","link":"https:\/\/fundamentalis.com\/?p=8816","title":{"rendered":"Will SP 500 Earnings Bottom with Q1 &#8217;19&#8217;s Results ?"},"content":{"rendered":"<p>That&#8217;s the $64,000 question today: will SP 500 earnings hit their trough with the Q1 &#8217;19 earnings reports set to start in the next two weeks ?<\/p>\n<p>Prior to last year&#8217;s distortion of the typical quarterly earnings revisions thanks to TCJA (Tax Cuts &amp; Jobs Act), it was usually noted on this blog that readers would see a &#8220;decay&#8221; in the forward 4-quarter estimate and in forward estimates until the actual quarter started, and then with the release of each quarter&#8217;s earnings reports, the &#8220;bottom-up&#8221; or quarterly EPS estimate for the SP 500 would increase roughly 3% &#8211; 5% through the end of the quarter.<\/p>\n<p>Here are a few examples:<\/p>\n<p><em><strong>Q4 &#8217;18:<\/strong> <\/em>The Q4 &#8217;18 bottom-up estimate for the SP 500 started at $40.86 and ended the quarter (3\/29\/2019) at $41.16 for an increase of 1% through the reporting period. That same estimate for Q4 &#8217;18 as of the end of Sept &#8217;18 was $42.56, so the estimate fell 4% until the actual earnings reports started, and then rose 1% as results came in.<\/p>\n<p><em><strong>Q3 &#8217;18:<\/strong><\/em> The bottom up estimate started at $40.56 and ended at $42.66 for an increase of 5.3% through the reporting period. The estimate for Q3 &#8217;18 as of June 30 &#8217;18 was $41.06.<\/p>\n<p><em><strong>Q2 &#8217;18:<\/strong><\/em> The bottom-up estimate started at $39.20 and ended at the end of Sept. &#8217;18 at $41, for an increase of 4.6% through the reporting period.<\/p>\n<p><em><strong>Q1 &#8217;18:\u00a0<\/strong><\/em>The bottom-up estimate started at $36.16 and ended the quarter at $38.07 for an increase of 5.3% through the reporting period.<\/p>\n<p>Here is another simpler way to lay it out for readers: what is the increase in each of 2018&#8217;s quarters bottom-up estimate from start to finish of the reporting period ?<\/p>\n<ul>\n<li><em><strong>Q4 &#8217;18:<\/strong><\/em>\u00a0+1%<\/li>\n<li><em><strong>Q3 &#8217;18:<\/strong><\/em>\u00a0+5.3%<\/li>\n<li><em><strong>Q2 &#8217;18:<\/strong><\/em>\u00a0+4.6%<\/li>\n<li><em><strong>Q1 &#8217;18:<\/strong><\/em>\u00a0+5.3%<\/li>\n<\/ul>\n<p>(Source: IBES by Refinitiv data using change in quarterly bottom-up estimate)<\/p>\n<p>Here is IBES by Refinitiv&#8217;s published &#8220;surprise factor&#8221;:<\/p>\n<ul>\n<li><em><strong>Q4 &#8217;18<\/strong><\/em> +1% (not yet final)<\/li>\n<li><em><strong>Q3 &#8217;18:<\/strong> <\/em>+6.4%<\/li>\n<li><em><strong>Q2 &#8217;18:<\/strong><\/em> +5.3%<\/li>\n<li><em><strong>Q1 &#8217;18:<\/strong><\/em> +6.6%<\/li>\n<li><em><strong>Q4 &#8217;17:<\/strong><\/em> +4.4%<\/li>\n<li><em><strong>Q3 &#8217;17:\u00a0<\/strong><\/em> +4.8%<\/li>\n<li><em><strong>Q2 &#8217;17:<\/strong><\/em> +5.5%<\/li>\n<li><strong>Q1 &#8217;17:<\/strong> +6.6%<\/li>\n<\/ul>\n<p><em><strong>Latest Weekly SP 500 earnings data:<\/strong><\/em> (Source: This Week in Earnings, IBES by Refinitiv)<\/p>\n<ul>\n<li><em><strong>Fwd 4-qtr est:<\/strong><\/em> $167.20 down from last week&#8217;s $167.41<\/li>\n<li><em><strong>PE ratio:<\/strong><\/em> 17x<\/li>\n<li><em><strong>PEG ratio:<\/strong><\/em> 6.44x<\/li>\n<li><em><strong>SP 500 earnings yield:<\/strong><\/em> 5.90% vs last week&#8217;s 5.98%<\/li>\n<li><em><strong>Year-over-year growth of fwd est:<\/strong><\/em> +2.6% vs last week&#8217;s +2.8%<\/li>\n<\/ul>\n<p><em><strong>Summary \/ conclusion: <\/strong><\/em>This week&#8217;s SP 500 earnings update was far more technical than desired, but i wanted readers to see that SP 500 earnings estimates follow a typical pattern as we move closer to and then through the actual reporting period.<\/p>\n<p>Readers will note that Q4 &#8217;18 SP 500 earnings results actually showed a far smaller increase of 1% than was typical the last 7 quarters. (The typical upside surprise for the SP 500 over time 4, 12, and 20, quarters is usually 3% &#8211; 6% with notable deviations for quarters like Q4, 2008 and then Q3, 1998, which was the LongTerm Capital Crisis.)<\/p>\n<figure id=\"attachment_8818\" aria-describedby=\"caption-attachment-8818\" style=\"width: 300px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/fundamentalis.com\/?attachment_id=8818\" rel=\"attachment wp-att-8818\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-8818\" src=\"https:\/\/fundamentalis.com\/wp-content\/uploads\/bespokesectorretYTD32819-300x190.png\" alt=\"\" width=\"300\" height=\"190\" srcset=\"https:\/\/fundamentalis.com\/wp-content\/uploads\/bespokesectorretYTD32819-300x190.png 300w, https:\/\/fundamentalis.com\/wp-content\/uploads\/bespokesectorretYTD32819-768x485.png 768w, https:\/\/fundamentalis.com\/wp-content\/uploads\/bespokesectorretYTD32819.png 818w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a><figcaption id=\"caption-attachment-8818\" class=\"wp-caption-text\">click to enhance \/ enlarge<\/figcaption><\/figure>\n<p>&nbsp;<\/p>\n<p>In my opinion, Q1 &#8217;19 SP 500 earnings revisions and the change in forward estimates will depend on Technology earnings (still the largest sector in the SP 500 at 20% market cap, and the best performing sector YTD in 2019 thus far) and Financials, which as you can see, according to this Bespoke table from Thursday night&#8217;s &#8220;Sector Snapshot&#8221; is the 2nd worst performing sector in the first quarter of 2019, despite having earnings growth expectations that are still healthy.<\/p>\n<p>Tech and Financials comprise 1\/3rd of the SP 500&#8217;s market cap in just those two sectors.<\/p>\n<p><a href=\"https:\/\/fundamentalis.com\/?p=8808\">Last week<\/a>, we noted that we were watching the credit markets closely this past week as the quarter drew to a close, and corporate high-yield in particular acted well. The HYG has moved further above its 200-week moving average.<\/p>\n<p>I expect that SP 500 earnings y\/y growth rates will gradually improve through 2019 despite tough compares vs 2018, although a weaker dollar would help. The dollar remains persistently strong and with 35% &#8211; 40% of SP 500 revenue being &#8220;non-US&#8221;, what the dollar does matters.<\/p>\n<p>Take this all as one opinion and with a healthy degree of skepticism.<\/p>\n<p>Thanks for reading.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>That&#8217;s the $64,000 question today: will SP 500 earnings hit their trough with the Q1 &#8217;19 earnings reports set 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":[84,53,161,123,91],"tags":[],"class_list":["post-8816","post","type-post","status-publish","format-standard","hentry","category-financial-sector","category-financials","category-longterm-capital-management","category-technology","category-weekly-earnings-update"],"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\/8816","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=8816"}],"version-history":[{"count":9,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/8816\/revisions"}],"predecessor-version":[{"id":8839,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/8816\/revisions\/8839"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=8816"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=8816"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=8816"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}