Understanding S&P 500 Forward Earnings Projections

Understanding S&P 500 Forward Earnings Projections

by Chris Combs

The below attached article titled “Latest Warning Sign for Markets: A Possible Earnings Recession” needs further explanation.

If earnings projections are being revised down by analysts, why has the stock market continued to recover?

The downward revision in full year 2019 S&P 500 EPS is mostly the result of a decline in AAPL earnings and earnings tied to oil prices, (i.e. some energy companies).

AAPL stock oversold relative to their earnings slowdown and is now recovering.  Likewise, we think energy centric companies have bottomed and are now rising as oil prices normalize going into the back end of 2019.  The market has already moved past these two issues.

AAPL’s forward earnings growth and energy prices are negatively impacted by trade tensions between China and the US. There is a high probability that a trade deal will be achieved. In this case, AAPL earnings and Oil prices will be revised up from here.

Ex-AAPL and the Energy sector, S&P 500 full year 2019 earnings growth still looks good.

The 2018 tax cut effect has also caused confusion for investors.  Ex-tax breaks, the S&P 500 EPS growth rate for combined 2018 and 2019 looks to be solid at above trend growth, a better way to view the health of US companies.

The 2018 tax breaks do present a high hurtle for YoY comparisons.  The market has priced this in as it continues to recover toward the 2,800 level.

Please read article below.  If you have any problems opening the article, right click on the image and select “Open link in new tab”.

February 12th, 2019|