S&P 500 Weekly Earnings Update: Does Brexit Change The S&P 500 Earnings Calculus?

| About: SPDR S&P (SPY)

With just one week left in the 2nd quarter, 2016, basically all 500 of the S&P 500 components have now reported Q1 '16 earnings.

In the next two weeks, we get the quarterly increase in the "forward 4-quarter" S&P 500 earnings estimate, which would be inclusive of the quarters Q3 '16-Q2 '17.

Thomson Reuters data (by the numbers):

  • Forward 4-quarter estimate: $122.96 vs. last week's $123.24
  • PE ratio: 16.6(x)
  • PEG ratio: 17(x) - still way elevated. The PEG is trotted put by the bears as evidence the S&P 500 is overvalued - can't blame them, either. (When you look at a y/y growth rate of 1% for the S&P 500 on the S&P 500 and a 16.5(x), the PEG is out there.
  • S&P 500 earnings yield: 6.04% as of Friday, June 24th, versus 5.95%
  • Year-over-year growth of the forward 4-quarter estimate: +0.97% versus last week's +0.99%.

Analysis/conclusion: There was an entirely different article written for today and I scrapped it because of the constant and unending cacophony of the "market crash" types: "markets in collapse" from a Black Swan aficionado, and Gray Schilling, with another article on deflation and the Treasury market and how global deflation is just a English pint away from reality.

And you know, they could be right, but how many times have you seen this many "prophets" lined up on one side of the market (and I'm guessing very few of them had the Thursday vote correct) and be right 3 months later.

People punish him all the time, but I think one of the best articles Jim Cramer ever wrote on TheStreet.com was during the summer of 2000, shortly after the Nasdaq peaked at 5,132 and we saw that horrific 2-month selloff into July, 2000 earnings, when a guy by the name of Jonathan Joseph downgraded the semiconductor sector amid death threats and such, and Jim penned a piece (I thought it was in support of Jonathan) about being "right for the right reasons."

Did Gary Schilling look at Wal-Mart (NYSE:WMT) and Amazon (NASDAQ:AMZN) and note the incredibly-powerful deflationary impact of two companies that comprise roughly $630 billion in annual revenue on a $15 trillion economy? (Long AMZN, No WMT (yet) but the stock has technically improved. WMT has a significant international operation too.)

In my opinion (and I could be very wrong) that is why the 10-year Treasury yield is scraping 1.6% today, still far lower than 2008-2009 period but still above the 1.39% print from July '12. The worries about inflation that I read in every economics and money & banking text in the late 1970's, early 1980's, has been all but eradicated.

To answer the question in the title today, my truly honest answer is "it's too early to tell". If more dominos fall in the EU the headlines will be grim,

Factset had some good thought on how "domestic S&P 500 stocks" outperformed "international S&P 500 stocks (stock with more than 50% of their revenue from Non-US countries".

An article is being worked on for www.seekingalpha.com that relates to this topic, that is sector-specific and dovetails with the Factset Earnings Insight this week, but for different reasons.

S&P 500 earnings per the Thomson data are set to improve as we roll into the July '16 quarter.

Brexit will fade as an issue. Every calamity does. I do worry about the dollar strength but like the move in Gold and Treasuries Friday I think it was "knee-jerk".

As long as the DXY doesn't trade above 96, I do think the rotation that started late January '16-early February '16 into Commodities and Energy, still could work.

Monday could be grim: Ryan Detrick of LPL Financial notes that "going back 15 years, when the S&P 500 drops more than 3% on a Friday, the following Monday has closed lower 6 of 7 times with an average drop of 2.3%."

The S&P 500 futures as i understood it traded as low 2,000 on Thursday night. 2,020.80 is the 200 day moving average per Worden.

Don't be surprised by a quarter-end rally into Wednesday and Thursday, June 30th. That is not a prediction, but there is too much fear today over an ambiguous event.

Eventually this is ultimately about faster economic growth for Great Britain and a higher quality growth at that. It will likely take some time.