How Are S&P 500 Earnings Looking For Full-Year 2016 ? (Energy Is Beyond Ugly)

|
Includes: BXUB, BXUC, DBE, EPS, IVV, JJE, LLSP, ONG, RJN, RSP, RWL, RYARX, SDS, SFLA, SH, SPLX, SPUU, SPXL, SPXS, SPXU, SPY, SSO, UBN, UPRO, VFINX, VOO
by: Brian Gilmartin, CFA

Which sectors have improved in terms of Q4 '15 earnings growth since January 1, '16 ?

(The first column is expected Q4 '15 earnings growth as of February 9; the second data set is expected Q4 '15 earnings growth as of January 1 '16):

Data courtesy of Thomson Reuters:

Consumer Discretionary: +9.6%, +8.5%

Consumer Staples: -1.3%, -2.1%

Energy: -75.3% -67.7%

Financials: +2%, +10.9%

Healthcare: +8.5%, +4.3%

Industrials: -1.8%, -1.8%

Basic Materials: -18.3%, -23.7%

Technology: +0.3%, -4%

Telecom: +18.9%, +18.1%

Utilities: -9.3%, -6.3%

S&P 500: -4.1%, -3,7%

The biggest improvement is Technology, albeit off low expectations. Healthcare is solid too, showing a 100% increase in actual versus expected, but it is clear the political climate is spooking investors. Look at Pfizer (NYSE:PFE) and large-cap pharma for a safer way to play Healthcare in 2016's market. Biotech is finally getting interesting from a technical perspective: the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) is down 35% from its $400 peak in July '15. The 200-week moving average is $235.

S&P 500 sectors ranked best to worst growth for Q4 '16:

Telecom: +18.9%

Cons Discretionary: +9.6%

Healthcare: +8.5%

Financials +2%

Technology: +0.3%

Cons Staples: -1.3%

Industrials: -1.8%

Utilities: -9.3%

Basic Materials: -18.3%

Energy: -75.3%

------------------

Q1'16 sector growth rate change from January 1, '16: (Note Energy - wow!)

Cons Discretionary: +15.3%, +18.3%

Cons Staples: -1.3%, -2.3%

Energy: -87.2%, -41.4% (far worse than the rate of decline from last year - hard to believe how this gets worse)

Financials: -0.9%, +2.4%

Healthcare: +6.4%, +7.4%

Industrials: -3.1%, +3.1%

Basic Materials: -14.1%, -1.1%

Technology: -5.5%, +1.7%

Telecom: +4.7%, +5.8%

Utilities: -1.8%, -1.2%

S&P 500: -4.2%, +2.3%

For the current quarter, expected growth for Consumer Discretionary, Healthcare and Telecom again top the list of the sectors with the best expected growth

2016 estimated earnings growth (full-year)

Cons Discretionary: +12.9%, +15.2%

Consumer Staples: +4.1%, +6.3%

Energy: -50.6%, -10.1%

Financials: +8.4%, +8.8%

Healthcare: +8.1%, +9.6%

Industrials: +4%, +5.4%

Basic Materials: +1,5%, +11.6%

Technology: +3.1%, +7.4%

Telecom: +2.6%, +2.3%

Utilities: +4.1%, +3.7%

S&P 500: +3.9%, +7.6%

Analysis / commentary

The decline in Energy estimates continues to be nothing short of tragic. I was having lunch with a client last week, who works at a large bank, and the regulators came through the bank and told the institution to write their energy loans down, whether they were performing or not. Shades of 2008, i.e., "You will take this equity, whether you want it or not".

For full-year 2016, Healthcare and Consumer Discretionary still show the best growth, but the Financial sector looks far better for the next 11 months than the rapid drop for Q4 '16.

There are places to hide in this market, and it may be in last year's losers.

I still think the US dollar weakening will help take some immediate pressure off the S&P 500. Today, the US dollar index dropped again. Technology and Industrials should be the immediate beneficiaries of a weaker dollar.

The four sectors or asset classes that have been thoroughly trashed since last summer and have suffered the biggest declines are Biotech, Transport, Small-Caps (Russell 2000), and Emerging Markets. The Transports look to be bottoming. Emerging Markets are range-bound.