Earnings Growth By Sector & Market Fundamentals

Posted by jbrumley on January 15, 2016 8:33 AM

Q4 Earnings Season Outlook

It's here again... earnings season. Alcoa (AA) kicked things off on Monday evening, posting mixed results. That is, the per-share income of four cents it earned topped estimates of two cents per share, though last quarter's revenue of $5.25 billion fell roughly $40 million short of expectations.

Regardless of Alcoa's numbers, the advent of earnings season is a reason to look at the market's bigger fundamental picture, examining what the pros collectively expect from stocks in the fourth quarter and how that compares to year-ago numbers.

With that as the backdrop, as of the end of calendar 2015 Standard & Poor's reports the S&P 500 (SPX) (SPY) is projected to "earn" $29.00 per share. That's actually up 8.4% above Q4-2014's total income, reversing a three-quarter trend of falling earnings. It's worth noting, however, that Q4-2014's earnings total was oddly low, and now serves as a low-bar comparison. That $29.00 expectation is still only 2.6$ stronger than Q4-2013's earnings figure of $28.25. As one can see, however, income of $29.00 merely puts the earnings trend back on its long-term course.

SPX Monthly Earnings Chart
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Of course, the Energy sector (XLE) is proving to the key drag on the broad market's total income.

As the sector breakdown below shows, eight of the ten primary sectors are expected to improve their bottom lines... Energy, and Utilities (XLU) (the implied tumble in Telecom's (XTL) bottom line is purely a mathematical one; the group is actually expected to swing from a year-earlier loss to a profit). Utilities only make up about 3% of the index's revenue and earnings, however, so the vast majority of any weakness in the broad market's earnings comes from the energy sector (which is projected to post a true loss for Q4).

insert 011316-sector-eps-growth
011316-sector-eps-growth (1)

Just because a sector's outlook is optimistic or pessimistic doesn't inherently mean that group will do that well or that poorly; the sector-level numbers can be off in some cases. You'll also see some of the Q4 growth outlooks are out of character relative to past and projected growth outlooks. The broad market's earnings projection, though, is usually on target.

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