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Over half the companies in the S&P 500 (SPY) reported Q1 earnings so far and the results seem slightly positive. The number of companies exceeding analyst expectations is high, but expectations have been lowered and do not assume much growth. It is still too early to get a full picture of Q1 earnings and the S&P 500's price action does not yet show a clear reaction from investors. Under the surface, some trends may have started to change last week and it is interesting to note the pockets of strength and weakness. In this article I will explore the earnings results so far as well as the S&P 500's valuation. I will also drill down and look at the trends for the top 100 companies in the S&P 500.

S&P 500 Price Action

Last weekend it started to look like the multi-month rally in the S&P 500 may be breaking down. However, the S&P 500 bounced back and is again above several important levels.

The S&P 500 still hasn't made a clear move, up or down, since the beginning of earnings season. So far, earnings look good, but the reaction of the S&P 500 is what matters most. We'll see if the S&P 500 breaks out of its recent range or if it continues to be choppy.

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(Source: FreeStockCharts.com)

S&P 500's Q1 2013 Results So Far

As of April 25, 271 companies in the S&P 500 reported earnings and 189 beat analyst estimates, which represents a beat rate of 69.7%. In the last three quarters, the beat rate ranged from 63.3% - 64.8%.

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S&P 500 P/E Multiple & Earnings Estimates

There are many ways to look at the S&P 500's P/E multiple. I prefer to look at the LTM P/E multiple for operating earnings, which shows that the S&P 500 is trading at 16.3x. The LTM period does not yet include Q1 results.

Here is a look at the S&P 500's P/E from different perspectives.

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The current estimate for Q1 operating earnings is $26.14 per share. In Q1 2012, operating earnings for the S&P 500 were $24.24 per share.

This data comes from Standard & Poor's and its quarterly estimates may be calculated slightly differently than the historical numbers, so the comparison is not perfect.

It is important to note that analyst estimates may be wrong, for any number of reasons. I use estimates as a gauge of sentiment and do not assume that they will be accurate. I am more interested in changes to estimates than the precise numbers.

The following chart shows the changes to the estimates for the S&P 500 earnings. In general, estimates start off high and then get revised lower, so downward revisions are not necessarily news and upward revisions are more important.

Over the last week, the estimates for Q1 2013, Q4 2013 and FY 2013 were all increased, which is a good sign and may be another positive indication of Q1 earnings. However, the estimates for Q2 2013 and Q3 2013 were reduced, so analysts may just be shifting earnings growth to the end of the year.

I still expect FY 2013 and FY 2014 estimates to continue to move lower over time.

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The next four charts put the current earnings season in perspective. The first chart shows that the S&P 500 is not trading at a high multiple on a multi-decade time frame, but the second chart shows that the multiple is stretched compared to the last few years.

The S&P 500 likely needs a good Q1 earnings season to continue to move higher because of the high multiple compared to the recent past. Earnings momentum is more important than the precise multiple right now.

Please note that the last data points in the third and fourth graphs are estimates and will change as the numbers come in. Therefore, these graphs are useful to get a general sense of the earnings picture, but the estimates should not be relied on precisely.

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Focus On The Top 100 In The S&P 500

Each week I focus on the top 100 companies in the S&P 500, which currently comprise 64.5% of the overall value of the index.

Below are four charts about the top 100 companies in the S&P 500: (1) 5-day price change, (2) forward P/E multiples, (3) analysis of companies with FY1 P/E multiples lower or higher than the median for the group and (4) changes in analyst estimates for FY1 over the last 7 and 30 days.

There were some interesting changes last week to the trends that I have been discussing lately.

In terms of the price action, some of the previous leaders lagged behind the overall market. Consumer staples companies have been strong since the beginning of the year, but there were some notable laggards last week, especially Procter & Gamble (PG) and Coca-Cola (KO).

Similarly, healthcare stocks have been leading the market, but many lost ground last week. Gilead Sciences (GILD) was one of the best performers in the S&P 500 year-to-date, but lagged last week. Big pharma was also weak, most notably Pfizer (PFE).

On the flip side, previous laggards, especially in the tech and energy sectors, did well.

Earnings have been the main catalyst for these stocks and there will be more big moves as more companies report.

The second chart show the P/Es for each company and the third chart distinguishes between companies with P/E multiples that are low/high compared to the median for the group. The consumer staples and healthcare companies are heavily represented in the group with high P/E multiples and the tech and cyclicals are trading at relatively low P/E multiples.

The last chart shows changes to analyst estimates for each company for FY 2013 (please note some companies are on different fiscal year cycles).

Apple (AAPL) reported earnings last week and analysts continue to ratchet down EPS estimates. Sentiment on Apple has been very negative and the negativity continued after earnings as well. At this point, a lot of the negativity may be priced in and I am expecting Apple to rebound. Last week, I added exposure to Apple.

The following shows the revisions to analyst estimates for Apple:

(Source: Yahoo Finance)

I am following the estimates for Apple closely to see if they bottom out or continue to slide.

Caterpillar (CAT) was another company that is continuing to face significant cuts to analyst projections. Caterpillar reported earnings last week and the mining sector continues to weigh on the stock. In fact, Caterpillar's management cut its outlook on the earnings call.

On the positive side, estimates for Halliburton (HAL) have been rising. The following shows the trend in Halliburton's estimates.

(Source: Yahoo Finance)

Here are the charts for the top 100 companies:

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(Source: Yahoo Finance, see further notes below)

Conclusions

So far, there are some positive signs coming out of Q1 earnings, but there is a lot more data to come. The Q1 rally in the S&P 500 needs earnings growth to justify further gains.

Under the surface, there may be some signs of a rotation in leadership for the S&P 500. A number of consumer staple and healthcare stocks underperformed last week. This price action is notable because these sectors led the Q1 rally. If these sectors need to pull back, it will be important for other sectors to start to perform well and lead the next move in the S&P 500.

Tech earnings have been mixed and some big tech companies disappointed, most notable IBM (IBM). Tech companies had a good week, tough some, like IBM, were just rebounding off big post-earnings drops. We'll see in the next few weeks if the tech sector can show some momentum.

Apple's stock price did not move much on earnings, but the negative analyst sentiment continues. My reaction to Apple's earnings was not as negative as most and I am looking for a rebound in Apple's shares.

I continue to think that there will be pockets of strength and weakness in the market going forward. For the S&P 500 to continue to rally it will need good (enough) earnings and maybe a rotation in leadership.

Notes

The tables exclude the following: P/E multiples greater than 100 and P/E less Median values greater than 50. Additionally, some information about Amazon, Berkshire Hathaway, AbbVie, Mondelez and Abbott Laboratories was not available.

The mean and median figures presented in this article represent the unweighted mean and median of the metrics for the 100 components in the SPDR S&P 500 ETF Trust and are not capitalization-weighted like the index itself.

Earnings Estimates are based on data from Yahoo Finance as of April 27, 2013.

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Source: S&P 500 Q1 Earnings Seem Positive: Is It Enough For More Gains?

Additional disclosure: I may trade any of the securities mentioned in this article at any time, including in the next 72 hours.