We start the weekly S&P 500 earnings update, with a spreadsheet showing estimate revisions for – well – a long time.
When readers open the spreadsheet, quickly look at three separate groupings:
1.) Note lines 154 – 159, or the Q4 ’13 earnings reporting period, which was calendar Q1 ’14. Note the revision ratio, of positive to negative revisions. Negative revisions clearly outnumbered positive, as Venezuela’s currency devaluation wreaked havoc in Consumer Staples, and the Russian Ukraine invasion also hurt analyst sentiment.
Despite the negative analyst sentiment, the SPDR S&P 500 Fund (NYSE:SPY) rose 2.70% in Q1 ’14
2.) Note lines 103 – 108, same first quarter, but for 2015. This is the Q4 ’14 reporting period, and the significant event was the rising dollar and falling crude oil prices. Note again, how analyst sentiment turned sour and negative revisions outweighed positive revisions.
In Q1 ’15, the SPY rose 94 basis points, or just under 1%.
3.) Finally, note lines 50-55, which was Q1 ’16 of last year, and readers saw widening credit spreads, falling commodity and crude oil prices (crude oil traded down to $28 in mid-January ’16) and negative headlines around Walmart (NYSE:WMT). In January ’16 alone, the S&P 500 fell 5% and the NASDAQ declined 8%. Note how not one week of earnings reports saw positive revisions climb over 40%, let alone 50%, but by the end of the first quarter, 2016, the S&P 500 has returned 2.77% as the commodity price recovery and credit spread improvement had begun.
Analysis / conclusion: While the S&P 500 has positive returns in each of the last 3 first quarter’s of the last three years, analyst’s had turned decidedly negative around forward earnings. The interesting aspect to this is that in 2016, Steve Liesman and CNBC did a study in conjunction with some economic group (CEA maybe?) and found that for a long period of time Q1 GDP tends to historically be “under-reported” and then a bounce is seen in the following quarter. I thought it was good work by Steve and CNBC since it clearly showed a statistical pattern that – for whatever reason – the first quarter of each year is weaker than the rest of the year.
The question is then, will we see this same pattern in Q1 ’17? Possibly in GDP, but doubtful that the “negative-to-positive” earnings revisions ratio continues.
Put another way, from reading the tea leaves around the S&P 500 earnings revisions, I would say “probably not”.
Factset noted again this weekend in their weekend “Earnings Insight” that estimate revisions cuts or reductions continue to track ahead of historical averages. In other words, analysts are “less negative” already and have been starting back in late summer ’16.
I expect the Energy sector to report the highest “upside surprise” relative to consensus earnings estimates (revenue could be another story) as expenses for the sector have been reduced sharply now for almost 8 straight quarters, and cash-flow should improve with crude oil and natural gas prices.)