Here is the post from October 8, 2017, where Q4 ’17 was looked at initially, relative to July 1 expectations. Remember, it isn’t just the rate of change for forward estimates, but the direction, whether the revisions are upward or downward.
Using data as of Friday, 11/3/17, the October 8th data in the post above, and the July 1 ’17 data, here is the trend in sector growth estimates for the 11 sectors of the S&P 500:
- Cons Disc: +7.7%, +10.1%, +11.8%;
- Cons Spls: +8.6%, +9.2%, +8.7%;
- Energy: +109%, +91%, +118%;
- Financials: +15.5%, +15.8%, +16.5%
- Hlth Care: +5.1%, +6.8%, +7.5%
- Industrials: +4.0%, +11.9%, +15.7%
- Basic Mat: +25.3%, +23.5%, +20.3%
- Real Estate: -0.3%, -0.2%, +0.5%
- Technology: +13.6%, +12.3%, +10.4%
- Telco: -0.5%, +0.5%, +0.9%
- Ute’s: +9.6%, +3.7%, +3.8%
- S&P 500: +11.7%, +12.3%, +13.1%
Analysis: The sectors that are seeing what I would refer to as “normal” erosion of estimates into the quarter’s reporting period, which is 60 days from now or mid-January ’17, are Consumer Discretionary. Health Care, Industrials, (actually Industrials seeing sharp downward revisions, and I wonder if that is due to General Electric (NYSE:GE), or an expected dollar, or both), Real Estate, Telco, and the S&P 500 as a whole.
The sectors where the estimates are continuing to diverge from the normal, downward pattern, and likely offer investors relative value opportunity in a market that continues higher are Energy, (maybe, maybe not, but the estimates have turned higher once again), Financials, (expected 15% growth for Q4 ’17 is very healthy, possibly the best quarterly growth in years), Basic Materials, Ute’s (look at the pop in the expected growth of Utility earnings the last 4 weeks), and finally Technology, no surprise, given Apple’s (NASDAQ:AAPL) earnings this past week.
Where investing is concerned, there is “absolute strength” and then there is “relative strength”: with the Tech sector up over 30% YTD, and 7 roughly 7 – 8 weeks left in the year, I thought we’d see Tech’s earnings start to give way a little, but not much.
Still given the total return of the Technology sector this year, the plan is to trim some Technology exposure around year-end, and rotate into either Financials, Health Care or Basic Materials.
A bad bet was made on GE for clients, and GE’s absolute and relative performance to both Industrials and the S&P 500 has been atrocious.
Still, It would be tough to chase non-GE Industrial exposure here.
Here is the weekly Thomson Reuters data “by the numbers” update for this week:
- Fwd 4-qtr estimate: $142.16
- P.E ratio: 18.2(x)
- PEG ratio: 1.72%
- S&P 500 earnings yield: 5.49% versus last week’s 5.51%
- Year-over-year growth of forward estimate: +10.58% vs last week’s 10.18%
The 10.58% y/y growth of the forward estimate is the highest value Ive seen in years, tracking this data. Growth of the forward estimate looks to be firmly above 10% now.
More to come; individual sectors will be looked at.
Remember too, Basic Materials, Real Estate, Utilities, and Telco represent about 3% of the S&P 500 each, by sector, or around 12% of the S&P 500’s total market combined.
That doesn't mean you can make money in these sectors, but of you are benchmarking relative to the S&P 500, know where your biggest bang is, for the buck so to speak.