Around April 10th we should start to see the very beginning of Q1 ’18 earnings, and typically the big banks start the ball rolling, or as Alan Abelson’s Barron’s used to say throughout the 1990’s “companies will step into the confessional”. Over the three weeks of April 10th or so till end end of the month, roughly 2/3rd’s of the S&P 500 will report numbers.
Here is how estimates have changed the last 8-9 weeks:
- Cons DIsc: +9% today vs 4.8% as of Jan 1 ’18
- Cons Spls: +9.5% today vs 9% as of Jan 1 ’18
- Energy: +74.7% today, vs 50.3% as of Jan 1 ’18
- Fincl’s: +24.3% vs 12.3% as of Jan 1 ’18:
- Hlth Care: +10.4% vs +5.6% as of Jan 1 ’18
- Industrials: +14.3% vs 9.8% as of Jan 1 ’18
- Basic Mat: +27.5% vs 21.6% as of Jan 1 ’18
- Real Estate: +3.2%, vs +4.8% as of Jan 1 ’18
- Technology: +22.3% vs 19.7% as of Jan 1 ’18
- Telecom: +13.2% vs -1.1% as of Jan 1 ’18
- Utilities: +9.7% vs +8.1% as of Jan 1 ’18
- S&P 500: +18.1% vs 12.2% as of Jan 1 ’18
After Energy, Financials are expecting the strongest rate of growth for Q1 ’18 and growth estimates have doubled in the last 9 weeks. Schwab (NYSE:SCHW), CME Group (NASDAQ:CME), JP Morgan Chase (NYSE:JPM)), SPDR S&P Regional Banking ETF (NYSE:KRE) each hit all-time-highs Friday while the XLF did not, held back by Wells Fargo (NYSE:WFC) (none). (Long all the rest).
Consumer Discretionary, or at least the XLY ETF, has Amazon (NASDAQ:AMZN) as 21% of its market cap and Netflix (NASDAQ:NFLX) as another 5% so if you think you might be diversified away from Tech owning Discretionary, you just own the other half of FANG.
Real Estate is the only sector to see current Q1 ’18 earnings growth estimates as of March 9, 2018, below that expected Jan 1 ’18.
Technology revisions are still somewhat muted—yes higher over the last 9 weeks, but much smaller than other sectors. Too much good news in Tech?
Conclusion: The trading action on Friday in the Financial sector was encouraging. The weighting was lifted for clients in late ’17 and early ’18 as we’ve written about here. It isn’t just interest rates either. I think Congress is taking the right approach to bank deregulation and it seems to be bipartisan. No one wants a repeat of 2008, but a big chunk of the US economy can’t be another version of regulated utilities either.
Here are the weekly S&P 500 numbers: (Courtesy Thomson Reuters I/B/E/S “This Week in Earnings”)
- Fwd 4-qtr estimate: $158.23 up $0.02 from last week’s $158.21
- P.E ratio: 17.6x
- PEG ratio: 0.85x
- S&P 500 earnings yield: 5.69%
- Year-over-year growth of fwd estimate: 20.72% vs last week’s 20.57%
Tariff talk and the end of earnings season might result in small increases to the forward estimate for a while. Still, the earnings data is solid for sure. I'm amazed that we could see $160 as a forward estimate before the “quarterly bump” hits us for Q2 18 through Q1 ’19, the first Friday of April.