Because Nike (NYSE:NKE) and Micron (NASDAQ:MU) reported Thursday, September 29, after the market close, those companies and the subsequent earnings and revenue revisions are not in the current IBES data by Refinitiv reports, so the data shown is as of Thursday, September 29 and any impact on the aggregate estimates won’t be known until early next week.
S&P 500 data:
- The forward 4-quarter estimate (FFQE) declined $0.25 this week to $230.43 from last week’s $230.68. Of the last 14 weeks, since July 1 2022, the S&P 500’s FFQE has declined sequentially 13 of those 14 weeks;
- The PE ratio as of 9/30/22 was 15.5x versus 16x last week, the same as when the quarter started;
- The S&P 500 earnings yield ended this week at 6.43%, moving one basis point ahead of 2022’s high EY of 6.42% as of June 17, 2022;
- Since July 1 2022, the FFQE has declined about $10 in total from $240 and change to $230 and change as of 9/30/22;
The S&P 500 earnings yield didn’t really get above 5% until the 2nd week of January 2022 and it’s stayed above since. In December 2018, the S&P 500 earnings yield hit 7% just before Powell started making dovish comments about monetary policy in the last week of December 2018 and then early 2019. In that 4th quarter of 2018, the S&P 500 PE slid from 17x to 14x the forward 4-quarter estimate, and the estimate itself remained stable at $168 per share from late September 2018 through the last week of December 2018.
The stock market in 2022 has been all about “PE compression”, since the S&P 500 has deteriorated at a faster rate than S&P 500 earnings.
Market Cap vs Earnings Weight: Top 10 Names in the S&P 500
- Apple (NASDAQ:AAPL): 7% market cap weight
- Microsoft (NASDAQ:MSFT): 5.77% market cap weight
- Amazon (NASDAQ:AMZN): 3.32% market cap weight
- Tesla (NASDAQ:TSLA): 2.33% market cap weight
- Alphabet (NASDAQ:GOOGL): 3.61% market cap weight
- Berkshire Hathaway (NYSE:BRKa): 1.58% market cap weight
- United Health (OTC:UEEC): 1.55% market cap weight
- Johnson & Johnson (NYSE:JNJ): 1.41% market cap weight
- Exxon Mobil (NYSE:XOM): 1.20% market cap weight
Top 10 Earnings weights:
- Apple: 4.2% earnings weight
- Microsoft: 3.7% earnings weight
- Exxon Mobil: 3.1% earnings weight
- Chevron (NYSE:CVX): 1.8% earnings weight
- JP Morgan (NYSE:JPM): 1.8% earnings weight
- Pfizer (NYSE:PFE): 1.8% earnings weight
- Alphabet (NASDAQ:GOOGL): 1.6% earnings weight
- Johnson & Johnson: 1.4%
- AbbVie (NYSE:ABBV): 1.4% “
- Berkshire Hathaway: 1.3% “
(Earnings weight detail courtesy of Refinitiv.)
The Top 10 market cap names comprise 27% – 28% of the S&P 500 index as of Thursday, September 29, 2022, while the top 10 earnings weights comprise about 20% of the S&P 500 index.
Conclusion
A long-time friend reached out the past week and asked me about S&P 500 earnings and what the next few months looks like (I laughed and told him, “Why not ask me something difficult ?”). He is a long-time bond-fund manager mainly of intermediate high-grade and high-yield corporate bonds, and his thinking was that this leg down in the S&P 500 since January 3, 2022 was all interest-rate driven, while the next leg down for the S&P 500 would probably be earnings driven, and I couldn’t disagree.
The S&P 500 at the peak in March, 2000 saw “technology” as 33% of the S&P 500’s market cap, while the commensurate “earnings weight” of that concentration was just 13%, while today, only Tesla might have the biggest disparity between it’s market cap weight and earnings weight within the S&P 500. That’s one big difference today.
The other disparity that’s becoming clearer is “US vs Non-US”. Look at FedEx (NYSE:FDX) and Nike, both enormous global brands with wide-reaching distribution and supply networks and both stocks are down 50% or more on earnings. A contributing factor to Non-US stocks in the next quarter will be the incredible strength in the US dollar and what that means in terms of “translation” for revenue and earnings.
More work needs to be done on the sectors but two sectors with heavy US concentrations that could have little overseas exposure are regional US banks and utilities, as well as domestic REIT’s.
That’s too broad a brush with too little detail but it gives readers some ideas.
Frankly, I’m worried about S&P 500 earnings, but as long as the top 10 market cap weights don’t disappoint, the S&P 500 will probably be fine.
On the last day of the quarter today, September 30, 2022, the S&P 500 finally cracked it’s June 16 low of 3,636 and closed at 3,584.62. The PCE data was still stronger-than-expected and jobless claims number fell back below 200,000. Both indicate strength where investors would like to see slowing.
The technical setup of the stock market got worse today, which isn’t good.
Take all of the above with a healthy dose of salt. IBES data by Refinitiv is the source of all earnings data. None of this is a recommendation to buy, hold or sell anything. Past performance is no guarantee of future results. Capital markets can and do change quickly for better and worse.