By next Friday, October 2nd, 2015, readers will know what the September ’15 jobs report looked like, and what the new “forward 4-quarter” estimate is for the S&P 500.
Primarily because of the nature of capitalism, and expense control, there is typically an upward bias to S&P 500 earnings estimates and cash-flow over long periods of time. That pattern plays out quarterly as well, as each quarter, beginning the first day of January, April, July and October, sees a quarterly bump to the S&P 500 forward estimate—typically between $3-$5 per share.
2015 has been a tougher scenario for earnings estimates watchers, given the 50%-60% quarterly decline in Energy earnings, but with the October 1 ’15 print, expect the “forward 4-quarter” estimate to reach $125-$127 per share.
From a bigger picture perspective: here are the current bottom-up estimates for the S&P 500 as of 9/25/15:
- 2014 (actual): $118.78
- 2015 (est): $118.44
- 2016 (est): $130.80
2015 will likely be a positive year for earnings growth, given that Q4 ’15 will see very easy comps for the Energy sector and the US dollar. However, 1%-3% S&P 500 earnings growth isn’t much to get excited about. This could explain why the S&P 500 is flat this year.
2016 earnings growth remains the question but I expect minimum “mid-single-digit” S&P 500 earnings growth in 2016.
Analysis / conclusion: Healthcare and Biotech had a brutal week this past week, with many names trading near their 8/24 lows and Amgen (NASDAQ:AMGN) trading below its 8/24 lows, while Energy, despite the negative sentiment and bad news around Brazil and China, looks to be trading better.
As discussed here, Energy and the US dollar start to lap much easier comps starting October 1 ’15. That could start to make a difference in forward estimates and guidance for Energy, Industrials, and – depending on China exposure – even Basic Materials.
During 2014’s August – September 10% correction, the S&P 500 bottomed in early October ’14 and – despite the collapse in crude oil – had a decent Q4 ’14 return.
Energy, like Financials in 2015, could be a sector to hold in 2016, if only from a “less risk” perspective. The sector might show tepid earnings growth in 2016, but it is hard to fathom how any quarter in 2016 could be worse than the 55% – 60% y/y Energy earnings declines we saw in 2015.