S&P 500 Earnings: Some Doubt Entering Q4 2020 Estimates

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Here is the latest y/y growth estimates – by sector – for the S&P 500 as published by IBES data by Refiniv as of Friday, August 21, 2020.

Given the trend in “expected” growth since July 1, here are the sectors showing improving estimates for Q3 2020:

  • Consumer Discretionary
  • Energy (somewhat of a surprise)
  • Financials
  • Health Care
  • Basic Materials
  • Technology

That is 6 of the 11 sectors and roughly 68% of the market cap of the S&P 500.

Note, however, the trend in the earnings estimates for Q4 2020. Just 4 sectors are showing improvement:

  • Energy (again, a mild surprise)
  • Financials
  • Basic Materials
  • Technology

These 4 sectors are roughly 42% of the S&P 500 by market cap.

Technology’s market cap weighting as of Friday, August 21, 2020 is now 28% of the S&P 500 per the Refinitiv data.


S&P 500 earnings data:

  • The fwd 4-qtr S&P 500 EPS estimate this week was $145.66, up slightly from last week’s $145.54 and increasing sequentially every week for 7 of the last 8 weeks.
  • The forward P/E is 23x.
  • The S&P 500 earnings yield is still depressed at 4.30%.
  • The average S&P 500 EPS growth for calendar 2020 and 2021 is still 4%.

Although readers have discounted it, the 2021 S&P 500 EPS estimate has risen to $166.02, and is now $4 above the 2019 final EPS print of $162.93. The difference has been improving. This blog wrote in April, May and June, we wouldn’t want to see the 2021 S&P 500 EPS estimate drop below the 2019 final. So far, it hasn’t.

Summary/conclusion: The roughly 32% drop in Q2 2020 GDP will be followed by what is expected to be a 12%-15% increase in Q3 2020 GDP, although we won’t know the first print until October 2020. The S&P 500 EPS revisions are following this sharply down Q2 2020 pattern and then also improving for Q3 2020 in a similar vein. Q4 2020’s EPS estimates are reflecting more uncertainty, although the comparison is for Q4 2019, which was a pretty decent quarter too.

I thought Q4 2020’s S&P 500 EPS trends were worth noting, although much will depend on the election and COVID-19 updates. Assume Q4 2020 will change further before Q3 2020 earnings begin and then after Q3 2020 S&P 500 earnings start.

Take everything you read here with substantial skepticism and a healthy dose of salt. The estimates change weekly and sometimes daily and the markets can change quickly and to a degree you don’t expect. Assimilate all information in light of your own financial profile and condition.

Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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