S&P 500 Weekly Earnings Update: Positive Revisions Improved In Q2 2016; Lapping Easier Earnings Comps In Q4 2016, Q1 2017

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Basically, the entire S&P 500 has reported their Q2 '16 earnings, with 497 of the 500 S&P 500 components now reported.

Revisions have been fairly positive, as detailed by this spreadsheet: FC-eps estimate revisions.

John Butters over at Factset confirms the Thomson Reuters numbers from a different perspective: In Factset's Earnings Insight published 9/2/2016, John notes that "the Q3 '16 bottom-up estimate for the S&P 500 dropped by 2.5%" during the 2nd quarter earnings reporting period."

  • The 4-quarter average is a 3.9% decline
  • The 20-quarter average is a 3.4% decline
  • The 40-quarter average is a 3.8% decline.

The point regarding the Factset data is that downward pressure on the S&P 500 Q3 '16 earnings is becoming less severe, even as crude oil still struggles.

Expect the same for Q4 '16 and Q1 '17.

There is no question the S&P 500 year-over-year growth rate in earnings remains subdued in the low single digits (Per Factset, Ex-Energy, the revenue growth is 2.6% and the S&P 500 earnings growth rate for Q2 '16 was +0.8%). When I posted the Factset "Ex-Energy" stats a few weeks ago, some readers became irate: I'm not making a value judgment about Q2 '16's "Ex-Energy" earnings growth - the data is simply stated as is.

If readers would look at the above, attached spreadsheet, they can see that within the S&P 500, positive revisions have risen nicely above 50% during the S&P 500 earnings reporting period from mid-July to mid-August '16, which is a sharp improvement from what we saw in Q1 '16, when the 4th quarter was being reported.

Which brings me to point #2: The S&P 500 will be lapping easier earnings compares in Q4 '16 and Q1 '17. Remember, it was exactly one year ago in August '15 and August '16 that China devalued the yuan, and the Chinese stock market fell precipitously, and the US stock market reacted accordingly. But it was also in Q4 '15 and Q1 '16 that commodities continued to drop sharply and high-yield credit spreads blew out (i.e. widened substantially) that really resulted in the 12% correction in the S&P 500 from late November '15 through mid-February '16.

Conclusion: One aspect I've been flatly wrong about is the rate of improvement in the forward 4-quarter estimate this year. My expectation was that by September '16 the "forward 4-quarter" estimate would be at least "mid-single-digits" growth. But the fact too is that analyst revisions, which are like tracking big-game hunters, are becoming steadily "less worse" and thus portent positively for forward quarters.

In terms of earnings and revenue growth, the S&P 500 will be lapping far easier numbers in Q4 '16 and particularly in Q1 '17. That portends positively for the rest of the year and into early '17 for S&P 500 earnings and revenue.

Here is the actual quarterly, bottom-up S&P 500 earnings data (again, by quarter) for the 5 quarters through Q1 '17:

  • Q1 '17: $26.96
  • Q4 '16: $29.52
  • Q3′ 16: $29.99
  • Q2 '16: $30.09
  • Q1 '16: $28.60

Note the sharp drop in the dollar estimate from Q4 '16 to Q1 '17.

For the entire year 2017 the estimated S&P 500 EPS growth rate is looking quite healthy, but it is still a tad early to make any predictions.

Thomson Reuters data (By the Numbers):

  • Forward 4-quarter estimate: $125.86 vs $125.88 last week
  • PE ratio: 17(x)
  • PEG: 9.26(x)
  • S&P 500 earnings yield: 5.77% - usually the S&P 500 has been a strong buy when a correction has taken the yield over 6%
  • Year-over-year growth rate of forward estimate: +1.87% vs last week's +1.66%. Continues to grow steadily but still well short of where I expected it to be by now in 2016.

Like the old Led Zeppelin "The Song Remains The Same" the S&P 500 earnings tune is similar to past weeks.

Slow, steady improvement is happening for sure.

Thanks for reading.