This blog has written many times about Bespoke’s quality research and this week Bespoke and Paul Hickey and his staff proved it once again with this PDF.
The S&P 500’s current bull market is eight years old, and yet looking at the above graph in the link, it continues to indicate or at least suggest that owning stocks over bonds in balanced portfolios is the right way to be positioned over the longer-term. If only from a “longer-maturity Treasuries continue to look wildly-overvalued scenario” and that longer-maturity debt does appear to have more downside than upside here, the chart seems to indicate that the short, sharp, equity market declines that occur within the general equity market should be bought.
Thomson Reuters I/B/E/S (by the numbers):
- Fwd 4-qtr estimate: $134.96 vs. last week’s $135.06
- P.E ratio: 17.8(x)
- PEG ratio: 1.82(x)
- S&P 500 earnings yield: 5.64% vs last week’s 5.63% and down from mid 2012’s 8% yield
- Y/Y growth rate of fwd estimate: +9.72% vs last week’s 9.80% and still near multi-year highs
How do Q2 ’17 S&P 500 earnings by sector look (Source: This Week in Earnings, dated May 12, ’17)
- Technology: +9.6% expected growth
- Financials: +9.5%
- Basic Mat: +5.3%
- Real estate: +3.6%
- Cons Spls: +3.3%
- Hlth Care: +2.2%
- Cons Disc: +1.6%
- Telco: +1.6%
- Industrials: +1.1%
- Ute’s: -3.3%
- Energy: +775.7% ( y/y growth distorted by very low dollar earnings in Q1 and Q2 ’16)
- S&P 500: +8.3%
Analysis / commentary: Technology is the best performing sector this calendar year-to-date, up nearly 18%. Look at Consumer Discretionary though – a big chunk of that sector is Amazon (NASDAQ:AMZN) and Amazon’s numbers (long AMZN) did come down after the Q1 ’17 earnings report. Financials have traded very punk too, since March 1 and the rally that followed President Trump’s address to both houses of Congress.
Here is what’s interesting though: as Factset noted on May 2 ’17, the second quarter ’17 earnings revisions are (or were seeing) seeing their smallest reductions since crude oil peaked in ’14.
The question we should ask for readers is what sectors (using the above data listed in 2nd set of bullet points) are seeing the smallest negative revisions as we approach Q2 ’17?
- Real Estate: +3.6% today vs. +3.5% on April 1 ’17.
- Financials: +9.5% today vs. +10.5% on April 1 ’17.
- Industrials: +1.1% today vs. +1.3% on April 1 ’17.
- Technology: +9.6% today vs. +11.5% on April 1 ’17.
- Health Care: +2.2% vs. +3.3% on April 1 ’17
Readers should remember, that Technology, Financials and Health Care – those 3 sectors alone – comprise about 50% of the S&P 500 by market cap.
Real estate, which is predominantly REITs is about 3% of the S&P 500 by market cap.
Our Emerging Markets (EM) post from early in the week looked good as Jeff Gundlach – the DoubleLine founder and CIO – was on CNBC Monday, May 8th talking a long position in EMs, and a short position in the S&P 500. Brazil (NYSE:EWZ) was up 2% Friday alone, and nearly 6% on the week.
Note too though the US dollar index started to get a little traction late last week.