Data Source: IBES data by Refinitiv
Updating this one graph every week, it’s truly hard to underestimate the strength of S&P 500 EPS and revenue.
Note the S&P 500 “expected” revenue growth rate revisions since Dec. 31, 2020.
Obviously, market cap is a big influence on the S&P 500 performance, but the data and revisions trends are crystal clear.
Sector look
IBES data by Refinitiv
Tracking the full-year 2021 perspective, note the jump in Communication Services since Apr. 2. It’s 2021 expected EPS growth rate has doubled in 5 weeks, from 13% to 26%. Utilities was the only sector that was unchanged. Every sector’s expected growth rate has increased for full-year 2021.
Summary/conclusion
It’s hard to fathom the strength of earnings these last 3 quarters, since the persistence of upward revisions and the y/y growth rates are pretty much unprecedented.
In the late 1990’s it was all about Tech and large-cap growth, which pulled the S&P 500 forward for the last 5 years of the century. And then the next decade, Tech (as a sector) was flat for 10 -12 years while commodities and emerging markets and the “old economy” sectors carried the S&P 500 through to 2006 – 2007.
Having lived through the decade of 2000 – 2009, the worst cumulative 10-year return for the S&P 500 since the 1930’s, and looking for reasons to be bearish, “peak growth rates” for the sectors with easy compares to 2020 today—like retail, airlines, Energy, autos, Industrials—should start to see tougher compares after Q2 ’21.
And truthfully that doesn’t have to mean that you need to be bearish. It just means that starting in the July, August, September period, the stock market may not look as easy as it’s been.
The S&P 500 itself is expecting 61% EPS growth and 17% (!) revenue growth versus Q2, ’20, and then the compares get tougher (and the expected growth rates are lower) as we move through the 2nd half of 2021.
Does that mean Tech starts to reassert itself? Maybe, if Tech’s relative growth starts to look better than the “old economy.”
Here’s what interesting though: Technology’s “expected” 2021 EPS growth rate coming into April was just 14%, well below the expected S&P 500’s growth rate of 23%. It makes sense Tech has lagged.
After Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) reported significant upside to Q1 ’21 EPS and revenue consensus, Tech’s expected ’21 growth rate jumped to 24%. BUT the S&P 500’s expected EPS growth is now 34.7% for 2021.
Sometimes it’s about “relative” and not just absolute EPS and revenue growth.
We saw a weaker dollar late last week, and I’m hoping that means Emerging Markets start to really generate alpha relative to the S&P 500.
Have what I think is a good article coming up on what’s been left behind by the 11-year secular bull market in the S&P 500.
That might be a good place to start shopping.
Remember, take everything you read here with substantial skepticism. Invest based on your own tolerance for risk and volatility. Even those who can get the market right for long periods can get it very wrong at the turn.
I thought Mr. Buffett was right last weekend when he remarked on this whole generation of new traders and investors. It seems easy now, but wait till you experience a 2000 – 2002 bear market (50% correction in S&P 500) and then a 2008 within a few years of each other.
It's not the volatility of the late 1990s that matters, but wait until you have 5, 7, or 10 years like the 2000 – 2009 period where cumulatively, all your portfolio has done is earned the dividend on the S&P 500. An entire decade of PE compression. See how much fun it is then…