It could have been worse, though it should have been better. That is, the broad market's earnings in the first quarter of 2017 (as measured by the S&P 500's results) haven't rolled in quite as high as expected for the first quarter, but they're a lot better than the year-ago bottom line.
With 63.6% of the S&P 500's constituents having posted their Q1 results, the S&P 500 is on pace to earn $29.05 for the first quarter. That's up 21.1% from the Q1-2016 bottom line, but don't get too excited just yet. When you take the losses energy stocks were booking a year ago and compare them the slim profits many of them are producing now, the mathematical growth is comparison. In the grand scheme of things though, last quarter's collective numbers were just so-so.
Even so, the bottom line of $29.05 to date isn't quite up to the $29.14 analysts were collectively expecting as of the end of March. Those same analysts were also calling for earnings of $31.80 for the second quarter of this year, and that outlook has been whittled down to only $31.55.
As of the newest numbers, the S&P 500 is trading at a trailing P/E of 21.5, and a forward-looking one of 17.8. Still, the longer-term projections -- through the end of 2018 -- are encouraging.
Drilling down into each sector's individual results, there are some clear winners and losers. Aside from the big improvements from the energy sector [more on that in a moment], the technology sector, healthcare, and financials have all done quite well so far for the first quarter. Conversely, discretionary, telecom and utilities names have posted sub-part results for Q1.
It's quite the turnaround for the financial sector, largely in thanks to the rise in interest rates. Energy stocks are thriving on slightly higher oil prices too. Discretionary stocks have been fighting a headwind for a while now, with most consumers spending about as much as they feasibly can without some sort of pay raise... the missing link so far in the employment turnaround. That's why we're not seeing a whole of growth here. The industrials have been persistently lackluster of late as well, though their earnings growth is expected to perk up over the course of the next four quarters.
To be fair, the year-over-year percent change table above doesn't paint a super-clear picture of how things are shaping up. Sometimes a raw number offers more perspective.
That's what the table below does. It reflects the changes in the earnings figures for each of the different sector indices maintained by the S&P 500. This does not reflect the breakdown of the S&P 500's overall Q1 earnings of $29.05. This is a look at the eleven different sector indexes made up of the S&P 500's stocks, all eleven of which are independent of one another. The benefit of this view is to get a better feel of the sequencing... where each group's per share income has been, and where it's going.
It's on this second table you can see why the energy sector's earnings growth for Q1 was heroic compared to last year, but still slim compared to where income is expected to grow in the coming year.
It's also on this chart you can see the trouble the real estate sector is expected to have going forward, and the scope of the recovery the materials sector is about to create.
There's no denying the overall market is on the right track, earnings-wise, even stripping out the unusually big benefit of the energy sector's earnings turnaround for Q1. But, there's also no denying the market has a valuation problem. The forward-looking P/E of 17.8 is still high by historical standards, and those who know the market's earnings history well will know the outlooks tend to be scaled down as the announcement day approaches. Realistically, the S&P 500 is currently trading at more than 18 times its actual earnings for the coming four quarters.
On the other hand, valuation doesn't matter until traders decide it matters. For the time being, hope and the media's rhetoric are keeping the market propped up, and that's enough to keep stocks in bullish mode.
Just keep it on a short leash.