How 2020 S&P 500 Sector Growth Estimates Have Changed
Summary
- Trying to write an entire blog post without mentioning the "c-word" is tough these days but watching full-year "expected" S&P 500 2020 sector growth rates is the one way (in my opinion) to gauge on a week-to-week basis how the Street is incorporating coronavirus information into earnings estimates.
- Both Tech and Health Care have higher expected growth rates than the overall S&P 500 for 2020 so "relatively" speaking, both sectors are expecting better growth as of March 6, 2020.
- The Financial sector has started to see the first significant revisions lower this week, after the expected growth rate was seeing higher revisions all year.
Trying to write an entire blog post without mentioning the "c-word" is tough these days but watching full-year "expected" S&P 500 2020 sector growth rates is the one way (in my opinion) to gauge on a week-to-week basis how the Street is incorporating coronavirus information into earnings estimates.
Here's how expected 2020 S&P 500 sector growth rates have changed since January 1, 2020:
A few comments on the trends:
1.) The overall decline in the expected 2020 S&P 500 earnings growth rate since January 1 through March 6, 2020, is just under 300 bps. For comparison purposes, I took a look at the deterioration in the expected, full-year 2019 S&P 500 earnings growth rate from January 1, 2019 through March 1, 2019 and it was 330 a bp decline. Despite the c-virus worries, last year's rate of deterioration was worse than 2020 (so far).
2.) Technology estimates for 2020 have really held in well. Watching Fast Money tonight (as I do on Friday nights, writing this earnings post), the FM crowd seemed bearish on tech, particularly Apple (AAPL) at tonight's close of $289. Given the warnings by Apple and other S&P 500 large-cap components, and the fact that the expected growth rate for Tech for 2020 hasn't yet deteriorated, makes me more optimistic than that crowd. Many of the large-cap Tech names are now approaching their 200-day moving averages.
3.) As you might expect, Health Care deterioration is just 100 bps since January 1, 2020. Both Tech and Health Care have higher expected growth rates than the overall S&P 500 for 2020 so "relatively" speaking, both sectors are expecting better growth as of March 6, 2020.
4.) The Financial sector has started to see the first significant revisions lower this week, after the expected growth rate was seeing higher revisions all year. The remarkable drop in the 10-year Treasury yield has to be crushing spread lenders like regional banks (KRE). JPMorgan (JPM) has traded down from $141 on January 2nd, 2020, to $108 as of tonight's close. Goldman Sachs (GS) is now trading below book value, which is $218 per share.
S&P 500 Earnings data (by the numbers):
Fwd 4-qtr est: $174.30 vs. last week's $175.39
The rate of change for the forward estimate is slowing since late January 2020 as you'd expect, but still well above the Nov 1, 2019 low. Part of the reason that the rate of change may be holding up is the rapidly slowing comps from 2019 at this time.
PE ratio: 17x
S&P 500 earnings yield: 5.86% vs. last week's 5.93%
Summary/conclusion: Last year at this time (March of 2019) the expected S&P 500 growth rate for 2019 had already slowed from 7% to 4% by the first week of March and ultimately dropped to 1% growth for the year, where it is today as the last three weeks of S&P 500 earnings for 2019 finish up.
The most surprising stat for me this week is that this year's expected annual deterioration is a bit better than 2019's pace of deterioration despite the C-virus fears.
Starbucks (SBUX) had the most stunning data late this week as SBUX management noted that SBUX comps in China were down 78% and will be down 50% for all of SBUX's fiscal Q2 '20 (ended March 2020). SBUX noted their US retail business "remains strong for now".
The S&P 500 didn't make new lows this week. That was very important.
More to come over the weekend.
Thanks for reading.
(Please note all opinions on this blog are my own, and readers are encouraged to take all opinions with a grain of salt. Markets change quickly for reasons we only know in hindsight. Evaluate all opinions and market information in light of your own financial profile.)
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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Comments (14)
thank you for this article.
any changes from your side about the PE estimate for the s&p500 since this article was written?
what about: corona in US is getting more attention right? in europe and worldwide corona spreading is accelerating. any ideas about VFC?
thank you!
Energy fallen of a cliff into the dark abyss! Nietzsche warned us that if we stare long into the abyss, the abyss will stare back at you. USO (etf) chart over 10 to 12 years is a dismal, dislocated wreck. Some commenter in SA just reminded me that Oil is no longer an investment, its just for trading. I will continue to hold on to my BP and RDS shares. Not buying more. But I am liking the decline in military-industrial big boys, Med Tech names and some nice industrials like HON and UTX. I put more money in GOOGL and EW recently.
