S&P 500 Earnings Update: Earnings Return Above 6% For The First Time Since March 2020
This chart is sometimes thrown at readers just to show the crowd the “net income” gains that Refinitiv has seen. He’s always been curious why Refinitiv calls this “equity-weighted” profit, which – as far as I can tell – it really isn’t since it excludes the number of shares.
Refinitiv releases it quarterly during earnings season, as you can see on the X axis.
From what I can tell by looking at the chart, Q1 22 net income estimates bottomed out around April 10 at $423 billion and have risen to around $453 billion since that April 10 date.
This graph is always on the front page of the “This Week in Earnings” report published by Refinitiv on Friday morning of each week.
S&P 500 data: (all data sourced from IBES data from Refinitiv)
- The 4-quarter forward estimate this week slipped $0.03 to $235.22 from last week’s $235.25;
- The PE ratio is 16.5x down from last week’s 17x and early 2022’s 19x – 20x;
- The S&P 500 earnings yield is 6.03% from last week’s 5.85% and early 2022’s 4.5% to 4.8%;
- The Q1 22 upward estimate fell $0.05 this week from $54.84 to $54.89;
How have the industry’s full-year 22 growth rates changed?
What was fascinating about this week’s update is how consumer discretionary (i.e. Walmart (WMT), Target (TGT), homebuilders, etc.) has had enough held its value well and didn’t see the decline in expected full-year 2022 EPS growth. Cisco also didn’t slow communication services much.
What readers should be aware of is the difference between market capitalization weights and “earnings” weights in an index. Walmart’s earnings weight is likely much larger than its market capitalization weight. The reverse is the case with Tesla (TSLA). Tesla is one of the leading names by market capitalization in the consumer discretionary sector, but its weight in earnings is minimal. If Tesla gives in, it will have a huge impact on consumer discretionary performance, but not so much on the sector’s expected growth rate (depending on how bad the EPS cut is, and again, that’s if it occurs.
What is more interesting is that the industrial sector expects EPS growth of 37% in 2022, roughly unchanged since January 1. But the market cap weight of the industry is only 8% in the S&P 500. Also, I can’t find any industry names in the top 25 of the S&P 500. Maybe the last big industry name in the S&P 500 was GE. The thing is, the industry is expecting good growth, but it’s well under the radar. This was a blog post on Industrials at the end of 21. However, since that last update, the Energy sector has overtaken the Industrials sector in terms of expected growth for 22 (by far – see the sheet Calculation).
Summary / Conclusion: Quite a reversal on Friday May 20 by the S&P 500 as the SPY briefly touched 3,818. Many people are watching this 3,800 Fibonacci level as it represents a one-third return from the March 20 lows to the highs. from early January 22 for the key benchmark.
I would love to see a big open down on Monday May 23, 2022 and then a substantial rally for the rest of the week. This would be a good sign of a short term bottom.
The long end of the Treasury curve and the AGG are working well. The early May 22 high for the 10-year Treasury of 3.16% could be the top. It’s not a prediction though. 50 bps is almost a given for the Fed meeting on 15 Jun 22.
The US dollar needs to depreciate and it would be great to see crude oil and gasoline pull back sharply.
The S&P 500 has closed with an earnings return above 6% since hitting 6.25% on March 31, 2020 (a week after the Covid low). The S&P 500 earnings yield landed just above 7% in Christmas week 2018, the last time Jay Powell tightened.
It’s just a metric. Take everything with substantial skepticism. Past performance is not indicative of the future and none of this is recommendation. Do your own homework and understand your own risk profile.
Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.