Investissement sur les marchés financiers, Gestion de portefeuille personnel, ETF & Technologies, Assurance-vie

S&P 500 earnings are improving greatly
par Stig Descamps 9/05/2017 Le temps d'un café

As of today, 9 May 2017, 83% of the companies in the S&P 500 has reported actual results for Q1 2017. 75% of the S&P 500 companies have beat the mean EPS estimate and the overall earnings growth rate for the S&P 500 is 13,5% (YoY). Where does this growth come from?

S'abonner aux notes hebdomadaires Marie Quantier

A majority of the ten sectors are reporting two-digits earnings growth

All the sectors are reporting year-over-year earnings growth except the Telecom sector which reported decline in earnings. The blended earnings growth rate for Q1 2017 (approx. 13.5%) will mark the highest growth reported by the index since Q3 2011 (16.7%). It will also mark the the first time the index has seen year-over-year growth in earnings for three consecutive quarters since Q3 2014.

Energy sector is the largest contributor to earnings growth in Q1

Since, the sector reported a loss a year ago (for Q1 2016), no growth rate may be computed. But, with $8.5 billion earnings reported for Q1 2017, compared to a loss of -1.5 $billion a year ago, the energy sector is celarly the main contributor to the S&P 500 earnings growth rate. Without this sector, the blended earning growth rate would fall to 9.3% from 13.5%.

Crude prices logged a loss of almost 6% for the first quarter as traders focused on the rising flood of U.S. shale-driven production, despite OPEC's moves to trim output and rebalance the demand-supply situation. With the recent uptick in U.S. shale production putting more pressure onto the market, oil ended the first quarter at $50.60 per barrel, 5.8% lower than year-end 2016 prices. Despite the sequential fall, both oil and natural gas prices are in a sweet spot compared to the corresponding period of 2016. Ending the dismal trend from the past few quarters, the overall results of the Energy sector finally turned the corner.

Financials sector leads the earnings growth rates

The Financials sector is reporting the highest earnings growth rate of all sectors at 20.9% with balanced growth across its industries. Banks tend to benefit from a steeper yield curve since they generally borrow in the short-term at lower interest rates, and lend for the long-term at higher interest rates. In the meantime, President Trump has made some comments that he intends to lighten the regulatory burden on financial companies. In particular, Dodd-Frank law would be repealed and a new regulatory reform would be pushed. The Materials sector is the second highest earnings growth rate at 17.7%. To be noted, the contribution of the company Freeport-McMoRan since the reported actual EPS for Q1 2017 is $0.15 compared to a year-ago EOS of -$0.16. Without this company, the blended earnings growth rate for the Material sector would fall to 11.8% from 17.7%. The Technology sector is also is reporting high earnings growth rate at 16.6% with the semiconductor industry to be largest contributor to this growth.

Telecom sector still suffering from high competition and lower prices

The Telecom sector is the only sector that has reported a decline in earnings at -5.0%. Verizon is the main contributor to this decline. Indeed, without this company, the Telecom would only suffer a -0.4% decline.

Why are us equities still expensive?

Since November and the election of Donald Trump as President of the United States, US Equities have rallied sharply, making them expensive. Though the current earnings growth rate reduced the expensiveness, we are still at levels that could be worrying for future stocks appreciation. And, beyond the macro-adjusted multiple for us equities currently at ~16 points, as Peter Oppenheimer, chief global equity strategist at Goldman Sachs said last week : "US equities are very stretched relative to history across most valuation measures". Meanwhile, interest rates increased since November (especially at this specific month), which is not good for the stocks attractiveness. The current equity valuation leads us to be very cautious regarding equity investing in our recommended asset allocation hence the current euphoria regime : stocks account for 10% of the asset allocation.

Message réglementaire: "Attention, tout investissement comporte un risque de perte en capital. Les performances passées ne présagent pas des performances futures. Les supports en unités de compte et ETF ne sont pas garantis et sont soumis aux fluctuations des marchés financiers à la hausse comme à la baisse. L’entreprise d’assurance ne s’engage que sur le nombre d’unités de compte, mais pas sur leur valeur."

Stig Descamps