Quick Bite | What’s happening to US corporate earnings?

At present, recent rises in the US market have seen the S&P 500 index kick up to be priced on a Price Earnings (PE) ratio of 19x, which is significantly above the long term average of 16x. That implies the market is expensive. It becomes even pricier if earnings decline more than anticipated, but less expensive if earnings are resilient despite an economic slowdown.

 

Market expectations are for S&P 500 earnings to decline by 6.4% in the second quarter. If earnings surprise on the upside, the PE ratio will look more reasonably priced.

The chart below shows a wide dispersion of earnings expectations across sectors. Energy and materials earnings are forecast to fall significantly, with the oil price and a range of commodity prices coming off the boil. Indeed, as this note is being written, oil is at a 52 week low, despite efforts by producers to “goose” the price by withholding supply. On the other end of the spectrum, Consumer Discretionary sector earnings are anticipated to grow strongly, reflecting high consumer confidence and robust spending in the US, where the labour market continues to surprise with its resilience.

Source: FactSet 

 

 

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