US earnings estimates have consistently been revised down over the last two years
But analysts are upbeat on the outlook for the next two years
Energy, technology, basic materials and healthcare predicted to lead the way
Russ Mould, investment director at AJ Bell, comments:
“Friday’s fourth-quarter earnings statements from megabanks JP Morgan Chase, Bank of America and Wells Fargo will start the latest US company reporting season, just as the first serious questions are being asked of the Trump reflation trade following this week’s highly colourful press conference, which offered few fresh details by way of firm economic policy,” comments Russ Mould, investment director at AJ Bell.
“US earnings season will be important for investors in UK stocks. Britain tends to play Greece to America’s Rome, so where the US markets go, the UK tends to follow. Hopes for a strong US economy (and thus a strong global economy) have helped carry the FTSE 100 through its recent string of record highs. Both the Dow Jones Industrials stock index and the dollar both retreated following Wednesday’s meeting between the press and the President Elect.
“According to data compiled by Standard & Poor’s, 23 members of the S&P 500 index will report figures next week (including Citigroup, IBM, Netflix and General Electric) and then 117 more in the last week of January (including Alphabet, Amazon, Apple, Intel and Microsoft).
“S&P figures suggest analysts are upbeat, looking for the S&P 500 to produce aggregate earnings per share of $30.46, up 6% quarter-on-quarter and 32% year-on-year.
“This is just the sort of robust momentum that US firms need to demonstrate to justify the record-high levels seen not just on the S&P 500 index, but the Dow Jones Industrials and NASDAQ Composite benchmarks, especially as estimates have consistently dribbled lower over the last two years:
Source: Standard & Poor’s. Shows consensus EPS forecasts per quarter at each different period.
“This slide in estimates is reflected in how full-year 2016 earnings are expected to come in below those of 2014, owing to the stronger dollar, a collapse in earnings from the energy sector and a marked slowdown in earnings growth from technology stocks.
Source: Standard & Poor’s
“The good news, for now, is analysts do think further growth is going to start coming through, with earnings rising at a consistent double-digit rate throughout 2017 and 2018.
“The table below shows which sectors are expected to report the fastest earnings per share growth over the next two years, with energy, tech, basic materials and healthcare leading the way.
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| 2015 | 2016 E | 2017 E | 2018 E |
Consumer Discretionary | 10% | 9% | 8% | 14% |
Consumer Staples | 1% | 4% | 8% | 9% |
Energy | -132% | 87% | 825% | 44% |
Financials | 5% | 6% | 14% | 16% |
Health Care | 8% | 15% | 24% | 10% |
Industrials | 4% | -2% | 9% | 13% |
Information Technology | 3% | 2% | 27% | 11% |
Materials | -46% | 61% | 35% | 7% |
Telecoms | 69% | -17% | 24% | 6% |
Utilities | -15% | 25% | 2% | 6% |
Real Estate | 2% | 23% | -26% | 16% |
S&P 500 | -11% | 8% | 20% | 13% |
Source: Standard & Poor’s