With the Big 5—Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOGL), and Microsoft (NASDAQ:MSFT)—all slated to report their Q3 ’21 financial results in the last week of October, ’21, the earnings updates may not matter much until then.
Here is a quick look at the S&P 500 EPS metrics in late July ’21 and then forward weeks after the Big 5 reported:
The forward 4-quarter estimate:
Click on the chart and look at the increase in the forward 4-quarter estimate from July 23, 2021 to July 30, 2021.
Expected calendar year growth rates:
Click on the chart—expand it—and look at the change in the “expected” calendar year S&P 500 EPS growth rates before and after the July 30, ’21 week when the Big 5 reported.
The bottom-up calendar year estimate:
These data points show the calendar year 2021 bottom-up S&P 500 EPS estimate and the “rate-of-change” between July 23 and July 30, 2021.
The point of all this being, with the Big 5 being 22.26% of the S&P 500’s market cap as of the market close on Oct. 15, 2021, that is when we should see the change in forward estimates.
That’s also where the risk is in the S&P 500 for readers. Even if the Big 5 sees modest positive changes or revisions in forward estimates following the last week of October’s flood of results, the stocks may not respond well given the upward revisions following the July ’21 earnings reports.
Anyway, at least readers are aware of what’s coming. This week, Tesla (NASDAQ:TSLA) and Netflix (NASDAQ:NFLX), as well as IBM (NYSE:IBM) report, and we get the first look at some energy names with Schlumberger (NYSE:SLB), Baker Hughes (NYSE:BKR), and Halliburton (NYSE:HAL) reporting. It will be interesting to see if the Energy stocks can retain their momentum as—like tech did earlier this year—energy now faces tougher “compares” at the end of 2021 and early in 2022.
IBM hasn’t made a new all-time-high since April of 2013. Arvind Krishna took over just prior to the pandemic. He’s had a tough start. Ultimately IBM needs to generate some real revenue growth.
S&P 500 EPS metrics
- The forward 4-quarter estimate increased to $213.77 from $213.65 last week.
- The forward PE rose to 20.9 versus 20.9.
- The S&P 500 forward earnings yield at the end of last week was 4.78% versus the week before last's 4.87%.
- Some of the newly-minted earnings pundits like Nick Colas of Datarrek started watching the Q3 ’21 bottom-up estimate which this past week was $49.33 vs the previous week’s $48.96 and still lower than the Q2 ’21 actual bottom-up print of $52.58 as evidence of weakness, but I think that’s a function of how strong the Q2 ’21 earnings quarter was, particularly for Technology, as we showed you in the above tables.
- Within the S&P 500 as a benchmark, there is the “Big 5 or 6” and their gigantic market caps, and then the rest of the benchmark.
- There are many new and decent S&P 500 EPS commentators popping up lately. I’d suggest to readers to follow them as well and get as many opinions and perspectives on S&P 500 EPS and revenue as possible.
Summary/conclusion
The next market event will be to watch and see if the S&P 500 and NASDAQ make all-time-highs, which for the S&P 500 would be a trade above 4,545 – 4,546, and for the NASDAQ a trade above the early September ’21 high of 15,403.
All the big financial names reported decent results the past week. Only JPMorgan Chase (NYSE:JPM) sold off after earnings, but everyone is bullish JPM and the stock is widely held. Schwab (NYSE:SCHW) and Bank of America (NYSE:BAC) traded well after earnings. Schwab rose 3.57% on the week, and traded well after their earnings report. The TD Ameritrade merger will continue to yield benefits (in my opinion). In the financial sector earnings preview last week, everything turned out as expected.
In terms of portfolio construction, the goal is to barbell long out-of-favor stocks and sectors and asset classes against the Big 5 positions and the financial sector winners like JP Morgan and Schwab.
IBM’s history since the 1980’s is to lay dormant for years and then trade like a momentum stock.
In general, the S&P 500 warnings patterns as a whole are little changed. 2022 will see slower overall percentage growth, but S&P 500—as the tables stand right now—see no change to typical patterns.