Brian Gilmartin | Nov 14, 2015 11:56PM ET
Each year around this time, halfway through the calendar 4th quarter, a stab is taken at trying to calibrate next year’s S&P 500 earnings growth. It is an exercise in attempting to bottle fog, since estimates change every day, particularly with earnings surprises during the heat of earnings season, and the Street can be heavily influenced by prevailing market trends.
That being said, here is a spreadsheet with Thomson’s and Factset’s latest 2016 earnings growth estimates as of 11/13/15: FC2016(ests)111315
Since 4th quarter earnings don’t start to get reported until mid-January ’16, we will have a much better read on calendar 2016 earnings estimates around the end of January, ’16, however, given the attached spreadsheet it looks as if S&P 500 earnings growth expectations are declining at a rate of about 1% per month, for the next year.
I went back and looked at last year at this exact time, to see what the 2015 S&P 500 estimates were looking like in mid-November, 2014 and the S&P 500 estimated growth rate was deteriorating at 2% per month (approximately), most of that being driven by Energy, whose sector estimates at this point were in free-fall.
Here is my take on 2016 earnings and the relevant variables:
AAPL’s expected forward growth rates are pretty subdued: (The first column is Apple’s expected EPS growth rate for that fiscal year, and the 2nd column is the expected revenue growth rate, both based on Thomson Reuters estimate consensus):
For fiscal ’16 (ends 9/30/16 for Apple), any upside surprise this year would have a upward pull on the 7%-8% expected growth in Technology earnings in 2016.
Analysis / conclusion: Right now anyway, the sense is that expectations are quite subdued for 2016 earnings, which is understandable. Consumption is 2/3rd’s of GDP, and thus represents about $10 trillion of the $15 trillion US economy, but retail stocks have gotten crushed as this past week demonstrated. However I don’t think it is a consumer balance sheet or a consumer spending problem: personally I think it is a “price” problem, as Amazon (O:AMZN) and Wal-Mart (N:WMT) duke it out to be the last entity standing in retail.
The US economy is adding roughly 200,000 net new jobs per month, the unemployment rate is 5% – 5.1% and per Bespoke’s Weekly Report as of Friday, 11/13/15, Retail Sales data did not beat consensus expectations once yet in 2015. I think the pressure on retail revenue (i.e. price pressure) is ENORMOUS thanks to Amazon, Amazon Prime and online ecommerce.
WalMart announced this past week that all their Black Friday and holiday specials would be online as well, so is Wal-Mart sacrificing store traffic for online sales? Bespoke has been running their “Death by Amazon” index for a few years, for good reason. You saw it this past week in middle-market, general merchandise retailers, like Macy’s (N:M) and Nordstrom (N:JWN). The only reason Kohl`s (N:KSS) didn’t get crushed is that they started having their own issues 3 years ago and the stock has lagged for a while. (Long AMZN, WMT for clients)
Every year holds something new, so investors need to remain flexible. What is bizarre about the retail sector is that when crude oil was trading at $100 and gasoline was $3.50 a gallon, the retail stocks were doing great. Now, that crude oil and gasoline have been cut in half, and you would think consumers have more discretionary income, retail stocks have cratered.
It could be that ecommerce is finally reaching a scale where bricks-and-mortar are finally impacted.
Go figure… I still think stock returns will be positive for 2016, particularly after 2015’s weak year.
S&P 500 earnings by the numbers:
One final point that readers might find of interest: the mainstream financial media and some pundits have been talking “earnings recession”. Per Thomson, the Q3 ’15 earnings decline for the S&P 500 is -0.8%. Per Factset this same number is -1.8%. BUT in dollars, per Thomson Reuters the “share-weighted” earnings of $273.0 billion is compared to $275.3 billion in Q3 ’14, so the percentage growth rates are represent about $2 billion in corporate profits versus a $273 – $275 billion pie.
Doesn’t seem all that “recession-like” to me.
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