S&P 500 Earnings Update: Negative sentiment dies down

S&P 500 earnings have seen a slight deterioration in recent weeks, with this week’s data coming from Refinitiv’s weekly “This Week in Earnings” report, Thursday evening July 14, 2022. When we get a slew of Friday earnings in the morning releases like we did today, they’re not included in the TWIE numbers (revisions, etc.) so we don’t know until Monday or Tuesday what the impact is on the overall data.

Overall revenue and EPS growth for the S&P 500 in the second quarter of 2022 is expected to reach +10.8% and +5.6% respectively. Excluding energy, these two figures fall to 6.6% and -3.4%.

Energy should have an extremely strong Q2 22 reporting season – you should expect substantial upside surprises in both EPS and earnings – then, unlike the rest of the S&P 500, the energy sector compositions harden as you progress through Q3 and Q4 ’22, and into Q1 ’23.

This dataset shows – in black border – the week of June 17, 2022 when the growth of the SP 500 EPS for 2022 and 2023 peaked.

Note the expected growth rates for the energy and basic materials sectors in 2023. This surprised me, although I suspect that could change by Q3 of 22.

Since the week of June 17, 22 for 2022, note how energy is the only sector with higher expected growth rates for the full year of 2022 each week, while the rest of the S&P 500 (the utilities is stable) is under slight downward pressure. It’s not that unusual. Next week, 72 S&P 500 companies will release their results and so by next Friday, 7/22, 100 S&P 500 companies will have released their Q2 22 results.

Analysts are intimidated right now given the S&P 500 YTD’s decline of -19.84% (as of Thursday 7/14/22), so there’s no reason for an analyst to push the numbers up to that the results are seen and that management can model that. higher revisions are warranted. It’s a “show me” market in terms of generating higher EPS and revenue reviews.

According to Briefing.com, Goldman Sachs (GS), Bank of America (BAC) and Charles Schwab (SCHW) are all reporting before the opening bell on Monday morning July 18, 2022.

Tesla (TSLA) reports next Wednesday, after the close by Briefing.com. Tesla is the first of the “mega-cap 8” as Ed Yardeni calls them, which are the top 8-10 market names that have dominated S&P 500 returns over the past 3 years.

S&P 500 data:

• The S&P 500 EPS 4-quarter forward estimate fell this week to $239.98 from $240.83 last week. This is the third week in the last 4 weeks where readers are seeing a sequential decline in forward EPS counts.
• The PE ratio this week is 16.1x.
• The S&P 500 earnings yield is 6.21% this week versus 6.18% last week, and 4.77% to start the year.
• The upward quarterly estimate of Q2 22 EPS sits at $55.11. The last three quarters – from Q3 ’21 data through Q1 ’22, were NOT able to print above $55 per share.

Rate of change measures:

Note that while the absolute numbers for the S&P 500 EPS for 2022 and 2023 have remained constant and within $1 or $2 of the April 1 estimate, the “rate of change” is slowing since comparisons for the 26 and 52 weeks are against 2021.

While the EPS estimate for 2024 is down around $7, it’s still too early to draw conclusions.

Readers should watch the S&P 500 2023 calendar estimate as we move forward into Q3 since the 4-quarter forward estimate includes the first two quarters of 2023.

Currently, dollar estimates are flat: That could change when the big five — Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet, and Meta (GOOG) (GOOGL) — all report the latest week of July ’22.

Quarterly bottom-up dollar estimates:

This table simply shows the trend of quarterly upward estimates of the S&P 500 EPS since the end of February 22.

It’s less descriptive as a data point.

S&P 500 Expected Quarterly EPS and Revenue Growth Rate:

This is a section of Refinitiv’s “earnings dashboard” that shows expected quarterly growth rates.

Note this week the downward revisions to the expected revenue growth rate for Q3 and Q4 ’22 revenue.

Let’s see if in the following weeks this is revised upwards again. These weekly data points can jump.

Summary/conclusion: Linking here to last week’s S&P 500 earnings update, the downtrend that’s been a constant these days is – as Bespoke notes – generally a good contrarian indicator heading into the season. benefits. There is no doubt that sell-side analysts are nervous, and historically this has been good for stock prices during earnings season.

What interests me is that the May 22 low at 3,810 is still intact as a weekly low, and the June 17 6-month low at 3,636.87 also has no no longer been approached. Even with the poor CPI data this week, those two key S&P 500 technical levels that I think are important are still in place.

The inflation story is getting old, but the recession story is young. The recession problem could end up affecting the yield curve and the bond market.

Tesla’s Q2 22 earnings report is a big deal next week, because it’s the exact type of “high PE, high valuation” stocks that haven’t done this year, following the outperformance of “large cap growth” over the past three years. Netflix (NFLX) also on Tuesday evening after the bell, will be interesting.

It’s never been held in size, and it still hasn’t been bought, as I’m not too excited about the contents yet, but the stock is nice as it went from $700 to $189 at the close tonight. Frankly, I’d rather be a little late to own it, than try to catch a bottom in a stock like this. It is an opinion.

Very often readers are looking for a big call, but that is not the case here. I think analysts are too nervous ahead of Q222 earnings, but even if there is weakness in forward estimates, the S&P 500’s -19% return this year (as of Thursday’s close evening) did he take this weakness into account?

So many charts are scratching their 200 week moving averages when I scoured Worden this week, it was a bit shocking. The industrial sector is expecting good EPS growth this year and yet several names, such as Caterpiller, Deere and Honeywell, have not escaped this sale.

These are not recommendations, just thoughts on the investment landscape.

The negative sentiment surrounding the upcoming earnings season is truly stifling. I’m looking for reasons to put money to work in the coming weeks, especially around the July 27, 2022 FOMC meeting and the GDP report, which is expected to be released on Thursday, July 28, 2022.

It’s not 2008, far from it.

Traveling this weekend to see a client on the west coast, returning on Sunday. I would like to post another update before the end of the weekend.

Take all of the above with a grain of salt. None of this is a prediction in the capital markets. Past performance is not a guarantee or expectation of future results. Watch how stock prices react to good or bad earnings news. This is the key – a poor earnings report that drives the stock higher on larger volume may possibly signal a bottom for the stock. Price action matters more than sentiment.

Thanks for reading.

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Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.