We havent updated the S&P 500 forward earnings estimate for a few weeks since there is little to talk about: the latest “forward 4-quarter” estimate for the S&P 500 is $105.88, still below the peak of $107 hit in July, 11, October ’11 and then again in January ’12, so corporate earnings ahve clearly flattened out, as the year-over-year growth rate has slowed to 7.5% or so for the key benchmark.
Q4’11′s numbers, which we are seeing currently, is the lowest year-over-year growth for the S&P 500 since the March ’09 bottom. Q4 ’11 is also the forst quarter since March ’09, where the expected eps for the S&P 500 has fallen seqenutially.
By the numbers, the S&P 500 earnings are expected to be low growth for q4 ’11 and q1’12 and then are expected to accelerate gradually as we move through 2012.
For the record, it looks as if full-year 2011 eps for the S&P 500 will grow 10%, although the S&P 500 returned just 2% for the year. Same with 2010: the full year eps growth for the S&P 500 was 22%, even though the S&P 500 as a benchmark returned 15% for the year.
This is the P/E compression we have written about – S&P 500 earnings remain close to an all-time high, and yet the index as an investment vehicle remians 10% – 15% below its all-time high struck in March 2000 (1,550) and then again in October, 2007 (roughly 1,570).
Utilities were the best performing sector in 2011, returning roughly 20% even though the sector grew earnings for the full year 2011 at a negative rate: utility earnings fell 1% in 2011.
Financials are expected to be the best performing sector in 2012, currently forecast to grow earnings 21%, versus the S&P 500′s +9% expected growth rate for the year.
Bizarre world – i wonder why i follow the earnings data so closely. In the 1990′s tech grew earnings pretty consistently at teh 35% – 40% growth rate per quarter, and the sector did well. Today there seems to be no ryhme or reason between earnings growth and stock price performance. Utilities are a perfect example.
Could the p/e compression we are seeing in the market, be a function of contineud deflationary worries ? Inquiring minds want to know.
I think the market action in early 2012, tells us we are exiting this dysfunctional cycle. Stock prices should follow earnings growth, which should somewhat be tied to the economic data. Wouldnt you think ?
We continue to sport a pretty heavy tech overweight in client accounts (along with industrials), and trade the “oversold/overbought” short-term opportunities. Verizon is pretty oversold here and we’ve been picking away this week.
Long VZ
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