Tuesday, August 15, 2017

Credit Where Credit Is Due: Trinity Asset Management's Fundamentalis blog Is Pretty Good at This S&P Earnings Thing

On Friday Bloomberg reported "Corporate America Is Having Its Best Earnings Season in 13 Years":
...Of the 454 companies in the S&P 500 that have so far reported second-quarter results, 68 percent have beaten analysts’ average estimates for revenue and 78 percent have topped per-share earnings expectations, according to data compiled by Bloomberg. Earnings rose an average of 9.8 percent, while sales have climbed 5.5 percent....
Which brought to mind this post from two months ago linking to:
Second Quarter 2017 S&P 500 Earnings Will Likely See at Least 10% – 12% Y/Y Growth
Fundementalis speaking:
...My guess at this juncture just looking from the Q2 ’17 Thomson data, is that by mid-August ’17, Q2 ’17 earnings growth for the SP 500 should be north of 10% – 12%, versus the 8.3% expected currently.

Q2 ’16 was still weak thanks to the commodity price pressure and the weak bank earnings from last year, so the easier comp will make Q2 ’17 growth look that much better...
That bolded bit is key. While most analysts thought the quarter's numbers were going to be good there were very few who thought they would be as good as we've seen.

Which explains a large part of why the market has been able to hold its own over the last two months, up 1.5% or so.
Here's what Fundamentalis is saying now:

Whatever Market’s Issues, SP 500 Earnings Are Definite Positive

By
The spike in the VIX this week, brought out the various market statisticians that talked about “forward returns” around the SP 500 after such a spike, and it portends favorably for the key benchmark.

That being said, if the SP 500 does run into a bigger drawdown, for whatever reason, the SP 500 earnings data is an unquestionable positive halfway through the third quarter.

Yesterday, it was written on this blog that the “forward 4-quarter” estimate is at a 5-year high. Still not over 10%, but close. Looking at the year-over-year growth of the forward estimate, for the last 5 years around mid-August, here is the trend:
  • 8/11/17: +9.87%
  • 8/12/16: +1.47%
  • 8/14/15: -1.82%
  • 8/15/14: +9.40% (just prior to the drop in crude oil from $100 to $28)
  • 8/30/13: +7.02%
At no point absent the inflated earnings growth in 2009 and early 2010 following the 2008 Financial / Mortgage / Credit Crisis has the “forward 4-quarter estimate y/y growth” remained above 10% for any length of time. We’ll see if it can get there in the next two quarters.

Frankly SP 500 earnings growth rates now lap the increase in the price of crude oil in Q3 and Q4 ’16, so the back half of 2017 might not see consistent 10% growth, but it will be close....
...MORE

We followed the Fundamentalis post with June 30's "What the Market Needs now is...Earnings" which is still true.
But now positive comparisons are going to be more challenging to achieve.
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