By the numbers, according to Thomson Reuters "This Week in Earnings" as of Friday, March 20, 2015:
- Forward 4-quarter estimate: $119.38, down $0.40 from last week
- P.E ratio: 17(x)
- PEG ratio: 21.63(x) - yowser! the dollar and Energy revisions have crushed the forward estimate
- Earnings yield: 5.66%, down from last week's 5.83%
- Year-over-year growth of forward estimate: +0.82%, the same as last week's y/y growth rate
With just one full week left in the quarter, here is how Thomson Reuters is seeing q1 '15 sector growth rates for the S&P 500, both as of Friday, March 20th, and as of January 1, 2015:
- Cons Disc: +7%, +14.6%
- Cons Spls: -0.6%, +5.3%
- Energy: -63.4%, -32.2%
- Financials: +11.2%, +13.9%
- Hlth Care: +7.2%, +11.1%
- Industrials: +4.2%, +11.5%
- Basic Mat: -1.2%, +17%
- Technology: +4.3%, +10.2%
- Telco: -0.8%, +1.2%
- Utilities: -6.6%, -5.9%
- S&P 500: -3.1% +5.3%
Summary/conclusion: To be upfront, when I saw the reaction to Nike's (NYSE:NKE) earnings today, where the futures orders, Nike's key metric, that typically gets the most weight in terms of the health of future business was +2%, but when adjusted for currency, or what Nike calls "constant currency" was +11%, and the stock rallied 3.5% today on 5(x) average volume, it was clear to me that "currency" will likely be discounted when companies report q1 '15 earnings.
Looking at the above ranking of the sectors in terms of growth rates, if we assume Energy is 10% of the S&P 500 by earnings weight, then Energy alone is a 6.3% drag on the S&P 500 and "operating earnings" of -3.1% should be 6.3% higher or +3.2%. If we take Standard & Poor's, Howard Silverblatt's estimate that Energy's operating earnings weight within the S&P 500 is 4% - 5%, (let's use 5%), then after adjusting for Energy's drag, the current estimate of q1 '15 earnings growth for the S&P 500 is flat or 0%, and none of this includes the dollar influence since it can only be identified by individual company.
If I stretch or extrapolate the math or logic a little more, and tell readers that for "most" of the companies I own within client accounts, which are primarily the top half of the S&P 500 by market cap, the "average" dollar drag in q4 '14 and q1 '15 (given management guidance) is between 4% and 7%, thus if I further factor that into the above "-3.1%" S&P 500 growth rate with 10 days left in the quarter, I can confidently tell readers that it is probably a safe bet that the S&P 500 as a whole will report a pretty strong earnings quarter starting in mid-April 2015.
My "forecast" or prediction for 2015 for readers (and clients, I tell clients exactly what readers see here), was for:
- 0% - 10% earnings growth for the S&P 500 in 2015
- 0% - 10% total return for the S&P 500 in 2015
- I didn't think the S&P 500 would see much "p/e expansion" in 2015
- Financials was my best pick in terms of sector selection, although I'm probably overweight Technology more than Financials in client accounts
Year-to-date, Financials are flat to slightly negative, versus the S&P 500's 1%-1.5% return.
There is one key Energy metric I'm watching to see when energy might bottom. I'll try and be out with that analysis this weekend. I've got a couple of what I hope are useful articles for readers, but it takes time to flush out the topic, and get it camera-ready for readers.