Wednesday, June 17, 2015

Here Comes Another Earnings Season (excerpt)

S&P 500 earnings rose 1.4% y/y during Q1. That’s not much, but industry analysts expected a drop of 4.0% at the start of that quarter’s earnings season. Among the sectors, the big loser was Energy. Excluding it, earnings rose impressively by 11.2% y/y. Here is the rundown of Q1’s earnings performance derby from best to worst: Financials (19.6%), Health Care (19.4), Information Technology (10.3), Consumer Discretionary (8.1), Industrials (5.5), Consumer Staples (4.0), Utilities (2.4), Materials (2.0), Telecommunication Services (1.8), and Energy (-59.7).

Q2 might also show underlying strength. Industry analysts are currently estimating that S&P 500 earnings will be down 4.5% y/y during the quarter. The latest analysts’ earnings consensus performance derby for the sectors is as follows: Financials (14.7%), Consumer Discretionary (7.1), Telecom (5.6), Health Care (4.1), Tech (3.0), Materials (1.2), Utilities (0.9), Industrials (-0.3), Consumer Staples (-2.9), and Energy (-63.8). Excluding Energy, the consensus currently anticipates a 4.8% gain in Q2 results.

Given that the price of oil crashed during the second half of last year, Energy earnings may continue to weigh on aggregate earnings during Q3, but have a diminishing impact from Q4 into next year. That’s assuming the price of oil won’t be dropping again anytime soon, as I do. That might be a bad assumption if the sanctions on Iran’s oil exports are lifted. I am also assuming that the trade-weighted dollar isn’t going much higher. That might be a bad assumption if Greece exits the Eurozone, which I am not expecting.

Today's Morning Briefing: Zigzag. (1) Another earnings season is around the corner. (2) Why do industry analysts cut their estimates? (3) We count 58 “earnings hooks” over the past 85 quarters. (4) The longest streak is the current one. (5) Will Q2 be as surprisingly strong as Q1, excluding Energy? (6) Joe slices and dices earnings. (7) With P/Es stretched, earnings matter more. (8) Health Care leads the pack. (9) US consumer indicators are mostly upbeat, while business indicators are mixed. (10) Focus on market-weight-rated S&P 500 housing-related industries. (More for subscribers.)

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