Tag Archives: debt ceiling

Patience on earnings

With the S&P500 up 100 points since last week’s low of 1882, the worry about global growth and earnings has been given a breather in the last few days trading. Last weeks low was about 12% below the May high (today’s close is at -8.6%). Last week, the vampire squid themselves lowered their S&P500 EPS forecast for 2015 and 2016 to $109 and $120 respectively, or approximately 18.2 and 16.6 times today’s close with the snappy by-line that “flats the new up”.

The forward PE, according this FACTSET report, as at last Thursday’s close (1924) was at 15.1, down from 16.8 in early May (as per this post).

click to enlargeForward 12 month PE S&P500 October2015

Year on year revenue growth for the S&P500 is still hard to find with Q3 expected to mark the third quarter in a row of declines, with energy and materials being a particular drag. Interestingly, telecom is a bright spot with at over 5% revenue growth and 10% earnings growth (both excluding AT&T).

Yardeni’s October report also shows the downward estimates of earnings and profit margins, as per below.

click to enlargeS&P500 EPS Profit Margin 2015 estimates

As usual, opinion is split on where the market goes next. SocGen contend that “US profits growth has never been this weak outside of a recession“. David Bianco of Deutsche Bank believes “earnings season is going to be very sobering“. While on the other side Citi strategist Tobias Levkovich opined that there is “a 96 percent probability the markets are up a year from now“.

Q3 earnings and company’s forecasts are critical to determining the future direction of the S&P500, alongside macro trends, the Fed and the politics behind the debt ceiling. Whilst we wait, this volatility presents an opportune time to look over your portfolio and run the ruler over some ideas.