S&P 500 Bounces Off 50-Week Moving Average (Again)
Brian Gilmartin | Nov 25, 2012 01:50AM ET
The “forward 4-quarter” earnings estimate for the S&P 500 is $109.44, down from last week’s $109.61. The earnings yield on the S&P 500 is now 7.76%, down from last weeks 8% level, and year-over-year growth for the forward estimate has started to slow down again.
The S&P 500′s P/E ratio using the current forward estimate is now 13(x) those forward estimates with 4% year-over-year earnings growth expected in 2012 for the S&P 500, and 11% expected next year.
The S&P 500 rose 4.5% this past week, once again bouncing nicely off it’s 50-week moving average as it did the last week of May, the first week of June this year. (See the chart below, under “Market Update”.)
Per ThomsonReuters, with 487 companies reporting earnings already for the 3rd quarter, year-over-year earnings growth is expected to be 0.1%, versus the -2% expected on October 1, while revenue growth is expected to come in at -0.8%.
3rd quarter earning and revenue expectations have been subdued for some time: this should not be a surprise to anyone closely scrutinizing the data each week.
How predictive is (are) forward earnings estimates for the S&P 500 and the various sectors? Although I can’t put my hand on the exact blog post, my friend Jeff Miller, wrote about this very topic a few years ago, and I thought he concluded that there was some predictive power to forward estimates. (Here is Jeff’s post from last week, here , and thought the stock was good value at $23. 2012 will be the first year-over-year decline in PC sales since 2001. I just dont think that decline is sustainable, or that the PC is that obsolete. There are laptops and servers with Intel chips and those aren’t going away yet. Microsoft (MSFT) is still above its 200-day moving average. MSFT repurchases about $1 billion in shares every quarter. However as of 9/30/12 they had something like $8 billion left in the current share repurchase plan, which was due to expire on 9/30/13, so look for a new program announcement or a doubling of their current pace of repurchases. Either way – good for the stock. MSFT has $66 bl in cash on the balance sheet as of 9/30/12, but only 20% is domiciled in the US. Still a $15 billion ASR (accelerated share repurchase) would be a nice holiday gift for investors. How likely ? Not so much. (Long INTC and MSFT)
* Financial sector earnings estimates make me a believer in the sector unless Dodd-Frank gets ugly. We remain overweight financials.
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* Industrials are our doggiest sector this year in terms of the overweight, with it being up just 7.50% as of early this week. Even tech was doing better year-to-date at +9%. Industrials could get a lift if China continues to rebound. China’s PMI released early Friday morning showed a 50 level, the first growth in 13 months, I believe. PMI’s are diffusion indices – meaning that a level over 50 indicates growth, and a level under 50 indicates contraction. The Basic Materials earnings estimates might be the best leading indicator for China’s economy that we have…
* Home Depot (HD) nearing its late 1999, early 2000 high of $69.75 in early Jan, 2000. Not that far away now in terms of price. We added some homebuilder exposure last week, by buying Toll Brothers (TOL), which is down 10% from its recent highs, and corrected a bit more than Lennar (LEN) did with the market correction. LEN’s relative strength is impressive. (Long HD, TOL, LEN)
* Gold was thought to have a big day on Friday, technically. It has been a long time since GLD has busted out to an all-time high. It has been a 12-year bull market for the metal. We have a small position in GLD, nothing meaningful.
* Verizon (VZ) was up 4.84% this week, and AT&T (T) was up 2.81%. We talked about the estimate revisions for telco last week. 2013 is looking for 20% growth for the sector. We dont have any exposure yet. Not too bright…
To wrap up the weekly missive, we don’t think earnings are an issue for 2013. The prospects of the Cliff are spooky, but as of yet I dont see it in the estimates. I wonder how many analysts today were around in the 1990′s ? Might be why there seems to be a cloud of pessimism around earnings despite a pretty reasonable valuation for the SP 500, and a high quality earnings in terms of cash-flow, etc.
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