Pundit's Perspectives – Mon 23 May, 2016

Q1 earnings results have little impact on sector performance

Combining data from FactSet and Bloomberg it is noteworthy to see that Q1 sector performance in stocks have not followed earnings-growth. Currently 95% of the S&P 500 have reported Q1 earnings and earnings have been weak to say the least… At a 6.8% decline.

When we drill down to individual sectors you would think that the sectors with the weakest earnings (largest decline in earnings) would struggle most. Apparently not. Check the breakdown below courtesy of MarketWarch.

S&P 500 sector Percentage change in sector performance since March 22 First-quarter earnings growth (FactSet)
Utilities 8% -3.0%
Energy 4.7% -107.2%
Health Care 2.3% 7.1%
Financials 2% -12.3%
Materials 1.9% -14.4%
Consumer Discretionary -0.5% 19.5%
Consumer Staples -0.6% 1.3%
Industrials -1.7% -5.3%
Tech -2.8% -6.1%
Telecom -3.9% 16.6%

Why would this happen? A number of factors can be used to explain these disconnects… Differing expectations for the quarter, future projections (especially when it comes from the energy sector and underlying commodity prices), share price movements before March 22nd and a number of technical charting reasons but the overwhelming fact is that earnings are decreasing. This just goes to show that when looking at short term price moves, fundamental factors, even those as major as earnings can have minimal to zero impact.

 


Comments:
  1. On May 23, 2016 at 1:55 pm,
    Avi Gilburt says:

    VERY simple . . if you look through the historical numbers, there are many times where earnings matter not. So, if there are many times when markets are not driven by earnings, then we must conclude that earnings do not drive markets. And, when they do move together, they are simply coincident factors and not driving ones.

    Yes, I know this is soooooo counter intuitive to what everyone “knows” to be true, but if you know history, and you understand markets, this is no surprise.

  2. On May 23, 2016 at 5:15 pm,
    cmc says:

    Since the market is said to lead by 6 months, wouldn’t the drop in performance during the course of the last half of last year be consistent with the lower earning currently reported?

  3. On May 24, 2016 at 2:17 am,
    CFS says:

    Just for the record, despite energy being down over 100% according to the above chart, that is NOT the case for my favorite energy ETF…..FRAK.

  4. On May 24, 2016 at 2:21 am,
    CFS says:

    current favorite……of course, I’m fickle and change my mind often.