The big problem with S&P 500 earnings in the third quarter did not attract investors. The stock market has been struggling since September, and the reason for this is that in a trade that is now above the long-term average in terms of price-to-earnings ratio, external factors, including commodity prices, wage inflation, overall inflation, supply chain chaos, and interest rate policy are blowing for stocks.
This is Fedex’s revenue, which appeared long before the start of the corporate earnings season, when many shipping accounts were lost, which came after analysts dropped their accounts on the eve of their reports. ‘lgan. Making a lot of money at the same time isn’t a good way to think about the S&P 500, especially when technology dominates right now, but analysts have noted that Fedex hasn’t lowered its earnings accounts enough to set the tone. about how companies are making a profit and how different this time it could be compared to other quarters following the bottom of Kovid.
A quarter for the S&P 500
On the eve of 2nd quarter earnings, growth rates for the S&P 500 rose. That didn’t happen this time around, with growth forecasts continuing to fall for weeks ahead of JP Morgan’s big gains that began Wednesday. Before the recent review of negative earnings, there was nothing more an increase in accounts in the last 12 months. One of the reasons why stock investors haven’t had to struggle to understand why they’ve been struggling since September.
As DataTrek Research noted in a recent report, “It was easier for U.S. stocks to rise when analysts raised their accounts almost every week, as they did before September.”
And that month hasn’t changed. Sam Stowall says the CFRA study’s overall investment strategy, typically EPS estimates, began to outperform quarterly prices at the beginning of the reporting period, but that won’t happen with the start of big corporate earnings as the S&P 500 continues its trend. negative revisions fell 1.7 percentage points to Oct. 11 from Sept. 30. He noted that oil prices, which Delta Air Lines commented on Wednesday, were higher than expected, with inflation, interest rates and a steady decline in 3rd quarter GDP forecasts. Global growth rates continue to decline.
Stowall said it could be the second quarter of the 49th quarter, when actual results were lower than at the end of the quarter.
Typically, EPS calculations begin to exceed quarterly prices at the beginning of the reporting period, but not this time.
“You invest in stocks because you want a portion of the stock, and the stock is earnings and dividends, and it’s not good if the earnings are related to revenue growth,” Stovall said. “We’ve seen 47 of the last 48 quarters (as of the second quarter of 2009), 47 of the 48 actual earnings exceeded quarter-end estimates. And we’ve done that by an average of 15%,” he said.
Bank of America Global Research released a similar tone in its correspondence to its clients this week, reminding them that missed earnings are rare, but that “the main focus is on focus,” as it began to soften and take over. will come. By 2022, EPS will be revised to a lower level. “We believe this will be a quarter related to restrictions and the supply chain,” the bank’s research team wrote.
Since the first quarter of 2020, which was missed in the last 48 quarters, revenue growth has reached 88% for the S&P 500 (2nd quarter of 2021). That’s now down 25% for the 3rd quarter as big gains increase. And Stovall said that if the bull market continues, investors should at least expect the expected rise angle to be moderate. “The second quarter could be the best quarter in terms of percentage change in revenue growth,” he said. “It continues to be positive, only a small percentage positive.”
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Brendan McDermid |
Another positive way to read revenue from the street: DataTrek Research still believes analysts are very low on Q3 and Q4 earnings.
Revenue growth is expected to slow. Consumers are expected to voluntarily drop close to 15%, but that has declined so much in 2020 that the company has reported three-digit gains after a low: 161% in the 1st quarter of 2021 and 210% in the 2nd quarter of 2021.
The revenue after Kovid grew at its best
Stowall said revenue growth will not be “repeated” and that’s one reason analysts don’t want to be overly optimistic. Even if negative changes to the S&P 500’s revenue forecast have been reversed in almost every sector, especially those that have made the biggest returns from Covid, including industry, materials, and consumer preferences, Stovall has revised earnings. ‘rib exit indicates the situation “” to be worse. Some sectors that are reviewing the biggest negative earnings are still expecting significant growth. It only increases by a small amount.
Another way to think about it is, “Investors are going through a revaluation of earnings, not a review of negative earnings,” Stovall said. “What they’re really doing is we’re in an unprecedented era, we’ve recently seen tremendous GDP growth, gross domestic product and revenue growth, and we’re still moving upwards because we’re now going through a period of real recession. By 2020, the forecasts will be less. “
That could be the difference between this quarter and every quarter since the Covid spread: companies really need to give instructions, says DataTrek founder Nick Colas. Investors are now in the “show” earnings phase, and that’s a big change, especially since S&P’s performance is closely tied to expected earnings for the year: U.S. equity stocks have taken a year-long wind. it is estimated that much fell during the Kovid period.
S&P 500 price-performance ratio
The S&P 500’s price-to-earnings ratio fell from 24x to 21x from its January 2021 high, but that’s a 28% premium to the average P / E ratio since 2000.
Prices are a bit rich for the S&P 500, and that means the company’s earnings guidance is higher than current expectations, which will be key to the market’s rise.
The market is trading at a P / E ratio, which is higher than expected for next year’s earnings. This means that even if analysts do better than expected and increase their earnings estimates, stocks may not open for the unexpected. What hasn’t been baked in the S&P 500 is other uncertainties as companies say about 2022 and the stagnation of inflation, how much they have to pay for labor, and the impact of production on home-based production. “In the first quarter after Kovid, there was a series of conversations where we had to set fire to the cost structure for companies. It’s no longer ‘wow, it’s not something that’s so defeated,'” Colas said.
Real earnings accounts for the S&P 500 do not support prices above the 20-year average of 18x, and the amount of earnings required to reach a 21x price. “Companies have been making great profits in the last 12 months,” Colas said. But now that the S&P 500 can “get into” its current price, investors need to make sure there are more positives in 2022. “That’s what drives what companies say about future earning power, especially stable margins. The market,” he said. “Prices are rich.”
That’s why the message sent by Wall Street analysts and recent market volatility can be summarized as a central part of this earnings season: the earnings recovery section from last year’s low is over.
“From here, growth will be slow and smooth and subject to external influences. So how can you add to that a few times? That’s the hard part,” Colas said.
The optimistic side of the current market suggests that investors still believe that earnings will be much higher than before the pandemic and will make adjustments of 5% to 10% more. And that makes the worldview here even more important.
Here are some key things Colas can confidently say today. No one expects a recession. GDP and income will grow. And big technology will be a big part of the S&P 500 per year starting this year.
But the proper growth of sustainable incomes is not a factor since the bottom of Covid. They are now, and if directors don’t convince investors that their outlook is strong, the market won’t really start again.
“It wasn’t right that guidance was the most important thing in the last four quarters,” Colas said. “The revenue surprises have been huge … Now it stops.”