Here is how the expected Q1 ’14 earnings growth rates by sector look for the S&P 500 as of February 28th, 2014. The first column is the sector, the 2nd column is the expected earnings growth rate or the sector as of 2/28/14, and the 3rd column is the expected growth rate as of 1/1/14:
- Consumer Discretionary: +7.3%, +14.5% (50% reduction in Q1 growth rate in 8 weeks. How much is weather ?)
- Consumer Staples: +4.2%, +9.3% (Emerging markets, currency issues and now Ukraine);
- Energy: -5%, -0.4% (Surprisingly commodities doing well year-to-date. Energy estimates not so much)
- Financials: +4.9%, +5.9% (Financials are showing good stability, but the growth won’t be what 2013 demonstrated, in my opinion);
- Healthcare: +3.3%, +5.8% (Pharma estimates a drag, biotech still on fire);
- Industrials: +1.7%, +5% (Our industrial holdings still doing OK.)
- Basic Materials: +2.3%, +9.8% (best outperformance in q4 ’13, now seeing est’s slashed again. Chemicals the strongest);
- Technology: +2%, +7% (AAPL a drag, but relative strength of sector is impressive);
- Telco: +13.2%, +14.2% (best growth of all sectors for q1 ’14, but stocks like T and VZ trading like drek);
- Utilities: +7.9%, +1.5% (note the upside revisions – we’ve never been big Ute investors. If Ukraine an issue, UTE’s will do well.)
- S&P 500: +3%, +6.5%
* Data Source: Thomson Reuters, This Week in Earnings
Analysis/Conclusion: The S&P 500 as a whole has seen Q1 ’14 growth expectations cut in half since January 1 ’14. Part of the reason is weather no doubt, and some of the reason is possible slowing strength, but as we pointed out last week, the trend is exactly what it was last year at this time.
Telco and Utilities look the best in terms of absolute earnings growth and relative strength in terms of revisions, and yet the sectors are headed in opposite directions. AT&T Inc, (T) and Verizon Communications Inc, (VZ) trade poorly while Ute’s were up 6.5% as a sector (SPDR Select Sector - Utilities, (XLU)) year-to-date as of February 28th, 2014.
How have full-year 2014 sector estimates changed since January 1 ’14 ?
- Consumer Discretionary: +10.7%, +13.5%
- Consumer Staples: +7%, +10%
- Energy: +9.1%, +12.9%
- Financials: +10.2%, +10.9%
- Healthcare: +8%, +8.2%
- Industrials: +7.8%, +9.4%
- Basic Materials: +10%, +17.1%
- Technology: +8.7%, +10.6%
- Telco: +16.8%, +13.5%
- Utilities: +2.1%, +2.9%
- S&P 500: +8.9%, +10.8%
* Data source: Thomson Reuters “This Week in Earnings”
When you look past the quarterly noise, the full year 2014 estimates are following their normal pattern. I thought we’d see 10% growth in 2014 for full-year 2014 EPS, but that might not happen. I think it will depend on how strong the last two quarters of 2014 come in.
Finally, here is how 2014 looks by quarter, for the S&P 500 as a whole, when breaking down each quarter of the year, from January 1 to Friday February 28, ’14:
- Q1 ’14: +3%, +6.5%
- Q2 ’14: +8.5%, +9.7%
- Q3 ’14: +11.6%, +12.7%
- Q4 ’13: +11.3%, +13.8%
* Data Source: Thomson Reuters
As the reader can quickly see, the back half of 2014 will matter most in terms of 2014 S&P 500 earnings growth. With Q4 ’13′s growth rate of 9.5%, if we see +10% for Q4 ’14, absent any dramatic improvement in the economy, that would be a great comp against the best quarter of earnings growth in 2.5 years.
When looking at the S&P 500, both by sector and by company, we like to look over numerous timeframes. Q4 ’13 earnings are very strong, Q1 ’14 expected earnings look far weaker, but the pattern is very similar to last year’s Q1 ’13, and full-year 2014 analysis indicates that 2014 earnings growth will be back-end loaded.