Per Thomson Reuters, “This Week in Earnings” the forward 4-quarter estimate for the S&P 500 fell $0.08 last week to $118.81 from $118.89.
The P/E ratio on the forward estimate is now 15.71(x), and the PEG ratio is 2.57(x).
The “earnings yield” is 6.37%.
More importantly, the year-over-year growth of the forward estimate fell slightly last week to 6.12%, from 6.19%.
Analysis/Conclusion: the fact is, week in and week out, sometimes there isn’t much to add in the way of commentary to S&P 500 earnings numbers.
Here is a spreadsheet just cooked up to show the progression of earnings growth by quarter over the last few years:FCSP500EPSbyyear.
You can see how strong earnings growth was in 2011, led mainly be Energy, but the S&P 500 only returned 2% – 3% in that calendar year, thanks to the EU, Greece and the threat of a US recession. In 2012, the year started off strong and then faded as we neared the 2012 Presidential election. Apple Inc's (NASDAQ:AAPL) earnings peaked in September, 2012 too. The two primary large-cap market leaders – International Business Machines (NYSE:IBM) and Apple – peaked in late 2012 in terms of their stocks prices. 2013 started off weaker and then Q4 ’13 was particularly robust. (Long IBM, AAPL)
Now we are looking at 2014, and while I suspect Q1 ’14 will come in with at least 5% y/y EPS growth for the key benchmark, the initial growth rates for the rest of the year by quarter, indicate that 2014 should see stronger growth in the final two quarters of the year, than the first two quarters.
How do you invest off this info?
I truly think the S&P 500 could tread water through the first 6 months of 2014, which would track the 2-year Presidential Cycle meme we heard about so much in January ’14. However, the trend in S&P 500 remains positive and moving “northeast” in nature. I have to explain to readers too, earnings growth can be deceptive: look at 2011, and then 1994. In 1994, when Alan Greenspan raised rates 6 times, the S&P 500 saw earnings grow 19% that year, but the index was only 1% that year, and most of that gain came in November and December ’94.
With 496 of the 500 S&P companies reporting, the y/y earnings growth for Q4 ’13 is +9.6%. That is a good number. Q1 ’14 is currently estimated at +2.1%, which should decline over the next few weeks, but expect the quarter to end up in the +5% neighborhood, by the time we get to mid to late May ’14. I do expect q1 ’14 to be the “low water” point for the year in terms of earnings growth.
In terms of sectors, we are still leaning towards commodities and Basic Materials, as we referenced in mid 2013 here. I still very much like Alcoa Inc (NYSE:AA), and United States Steel Corporation (NYSE:X), although I was hoping X would trade down to its 200-day moving average. We added to some Freeport-McMoran Copper & Gold Inc (NYSE:FCX) in small quantities on Friday, 3/21/14. Coal is looking very interesting too…