S&P 500 Weekly Earnings Update: Revisions Continue Higher, But Entering Quiet Period
- Like in the last 12 weeks and even longer, the upward revisions to forward quarter growth rates should portend favorably for "the market" in 2021.
- Rising rates are definitely spooking investors and compressing valuations on the mega-cap growth stocks.
- The quiet period really start March 15 or so, but the numbers are softening a little already.
The "quiet period" for earnings activity, both in terms of releases and upward / downward revisions, usually lasts from the last two weeks of each quarter, which will be roughly March 15th, to the first two weeks of the new quarter, which in this case is roughly April 14-15, 2021.
Oracle (ORCL) is the big tech report next week. The stock has run nicely after the Barron's article detailing their continued progress in cloud. I'll be doing an article on Oracle's earnings preview for Seeking Alpha this weekend. AWS, Azure (Microsoft (MSFT)) and Google (GOOGL) (GOOG) Cloud already have a decent head start. That doesn't mean you want to bet against Larry Ellison and Safra Katz, but Oracle is looking up in terms of cloud market share and trailing the pack already, which is a situation unfamiliar to Oracle over the last 40 years. That being said, Oracle's installed base means they are not starting from scratch.
Expected '21 S&P 500 EPS and revenue growth rates:
Source: IBES data by Refinitiv
Like in the last 12 weeks and even longer, the upward revisions to forward quarter growth rates should portend favorable for "the market" in 2021, but rising rates are definitely spooking investors and compressing valuations on the mega-cap growth stocks.
However, this table is still a positive for forward earnings and revenue growth for the S&P 500.
The forward earnings curve:
Source: IBES data by Refinitiv
In this section of our analysis of IBES Refinitiv earnings data, we watch the rate of change of the S&P 500 forward earnings curve.
The quiet period really starts March 15th or so, but the numbers are softening a little already.
Part of this is due to the fact there are simply fewer companies reporting over the next four weeks.
Here's a snapshot of the period from December 11th through the start of Q4 '20 earnings in January '21.
Source: internal spreadsheet from IBES by Refinitiv data
Note how the four-week rate of change slows starting mid-December '20 and then reaccelerates after the start of Q4 '20 earnings in mid-January.
Just the absence of earnings releases, and what is probably the lack of a need for sell-side analysts to update their models, results in a slow drift downward in earnings revisions and numbers.
Having done this data every week since early 2000s, it seems to me that the sell-side estimates always err to the conservative or cautious side and particularly after the 33% COVID-19 correction last February - March '20.
It would seem analysts would rather miss a big upside EPS number, and watch a stock move substantially higher, than to be too optimistic and miss a big EPS / revenue downside surprise.
S&P 500 EPS key metric update
- The forward four-quarter estimate this week was $174.59 versus $174.19 from last week and $159.02 from 12.31.20.
- The PE ratio remains at 22x the forward estimate
- The S&P 500 earnings yield is 4.54% versus 4.57% last week and 4.23% on 12.31.20.
- The "average" expected EPS growth for 2020 and 2021 is still 5%.
- The calendar 2021 S&P 500 EPS estimate continues to move higher every week, to $174.44 this week, from $174.11 last week, and $167.25 on 12.31.20
Little has changed about either the trends or the revisions in forward S&P 500 earnings. Do your own homework and invest only based on your financial and emotional profile.
Take everything you read with skepticism and know that investors have various time horizons and risk appetites.
Interest rates are having a big influence on this market so far in 2021, but a correction was long needed anyway.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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