95 S&P 500 companies have reported Q1 ’17 earnings as of Friday, April 21, 2017 per Thomson Reuters I/B/E/S. By the end of this coming week, April 28, 2017, about half the S&P 500 will have reported their first quarter results.
The Financial sector is expected to grow earnings 19.9% and revenue 8% in Q1 ’17, per Thomson’s “This Week in Earnings”, published Friday night, April 21 ’17.
Like much of the S&P 500, that number looks good thanks to the weak compare against the Financial sector’s Q1 ’16 earnings and revenue growth, where Financial sector earnings fell 10%, and revenue fell 1%.
This coming Thursday night, April 27th, the schedule calls for several mega-cap Technology companies to report Q1 ’17 earnings:
- Amazon (NASDAQ:AMZN)
- Microsoft (NASDAQ:MSFT)
- Alphabet (NASDAQ:GOOGL) (I still call it Google)
- Intel (NASDAQ:INTC)
While not a Technology company per se, Starbucks (NASDAQ:SBUX), a NASDAQ 100 component, also reports after the bell Thursday night. (Long all companies mentioned in various weights.)
Jeff Miller, has a good headline for his excellent weekly summary, Time to Rebuild the Wall of Worry?. We probably do need a a little “rebuilding” here.
Technology as a sector is expected to grow Q1 ’17 earnings and revenue +15.7% and 7.3% respectively versus -4% and -6% respectively in Q1 ’16.
In Bespoke Investment’s weekly newsletter, published every Friday night, Paul Hickey and his staff usually devote a few pages to discussing S&P 500 earnings: the point this week is that both Technology and Financial sectors have positive “current revisions spread” and Technology’s spread is positive to the degree that – as Bespoke concluded – “the Technology sector typically has seen weaker returns when its revisions spread is positive heading into earnings season” versus the opposite.
It's another way of saying expectations are high for this week’s Technology earnings reports, so investors might want to prepare for a little weakness.
Analysis / conclusion: With a hat tip to Bespoke, weak compare’s versus last year and high expectations into Technology earnings should cause readers to be a little cautious and careful. However, the earnings game is a long game, and thus I don't expect to make any changes to sector weights or positions.
Microsoft (MSFT) remains clients' number one position and that’s been the case for several years, since ValueAct took a position in the stock in April, 2013. (ValueAct has undoubtedly trimmed some of that Microsoft position since 2013.) Microsoft is a GARP (growth-at-a-reasonable-price) stock, with the added positive that in 2016, Microsoft cleared its early 2000 all-time-highs during the peak of the Technology and large-cap growth bubbles—of $51, $52, $53 per share. (Some technicians saw a $58 print for Microsoft at some point in the late 1990s, early 2000, but it doesn’t show up on Worden TC2000, which is my technical software. Other technicians were asked to confirm Microsoft’s all-time-high from that time period, and all tell me, $52 – $53.)
Microsoft could get the added benefit of a resurgent PC sector this quarter and the software giant is also a beneficiary of any cash repatriation plan out of Congress, should that ever happen. However my own expectations seem too exuberant, so today’s summary will end there.
My top two sector overweights remain Technology and Financials and the top two client holdings remain Microsoft and Schwab (NYSE:SCHW). It's been that way for years. Positions and weighting can change at any time.
Energy’s weighting was reduced on Friday when the VanEck Vectors Oil Services Fund (NYSE:OIH) was sold to what is probably now a “market weight” at 7% or so, but with Emerging Markets and Brazil ETFs (iShares MSCI Emerging Markets (NYSE:EEM); Vanguard FTSE Emerging Markets (NYSE:VWO) and iShares MSCI Brazil Capped (NYSE:EWZ)), which are markets closely tied to Energy. In this way I still feel like clients have an indirect overweight to the sector.