Ahrvo Weekly Sector Rankings: 4/20/2020
Earnings season is well underway. For Q1 2020, 45 S&P 500 companies have reported earnings. Of the companies that have reported, 66% have reported a positive EPS surprise (beat earnings expectations) and 70% of S&P 500 companies have reported a positive revenue surprise (beat revenue expectations). The earnings decline for Q1 2020 thus far has clocked in at -14.5%, which would make it the largest earnings decline for the S&P 500 since Q3 2009. Revenue growth has averaged .6%. All sectors have a slower growth rate than they did on March 31st. The stock market’s performance continues to deviate from economic fundamentals/ Eventually, that will need to be reconciled. Over the next week, 96 companies are expected to report, providing additional clarity on the state of corporate America.
According to Factset, the net income margin (a measure of profitability) for S&P 500 companies has fallen to 9.4% based on reported Q1 results. This is below the 5-year average of 10.6%. The fall in profitability did not start this quarter. S&P 500 companies’ net income margins (profitability) have declined for the last four quarters. The largest decrease in profitability has been experienced by cyclical sectors- Financials (down 60%), Energy (down 250%), Consumer Discretionary (down 155%), Industrials (down 136%), and Materials (down 21%). Defensive sectors profitability has held up much better- Consumer Staples (down 3%), Healthcare (down 5%), Technology (down 3%), and Utilities (up 1%). Overall, analysts expect net margins to decrease in the 2nd quarter and make a rebound in the 3rd and 4th quarter of 2020.
For the first time in two weeks, all S&P 500 companies did not have a positive price performance. By and large, defensive sectors outperform cyclical sectors. Signaling that investors are becoming more cautious as the stock market continues to rise. Defensive sectors- healthcare (ticker: XLV), consumer staples (ticker: XLP), Utilities (ticker: XLU), and technology (ticker: XLK) returned 6.5% (outperform), 2.9% (outperform), -1.1% (underperform), and 2.9% (outperform). Cyclical sectors- consumer discretionary(ticker: XLY), energy (ticker: XLE), financial (ticker: XLF), materials (ticker: XLB), and industrial (ticker: XLI) returned 4.1% (outperform), -2.7% (underperform), -2.4% (underperform), -2.4%, and .2%, respectively. The S&P 500 (ticker: SPY) was up 2.3%.
Over the last month, the S&P 500 is up ~17% while the U.S. economy has lost 22 million jobs- more than erasing the jobs created over the last decade’s economic expansion. The decrease in earnings, coupled with the rise in stock prices has led to the S&P 500’s multiple to expand. Making stocks more expensive at a time when economic uncertainty is at an all-time high. The forward 12-month P/E ratio for the S&P 500 is 18.5x. This P/E ratio is above the 5-year average (16.7x) and above the 10-year average (15x). Analysts project that Q2 earnings will decline by -26.6% and a revenue decline of -5.7%. For Q3, analysts are projecting an earnings decline of -13.3% and a revenue decline of -1.6%. Things are expected to improve in the last quarter of the year, with earnings expected to fall -4.8% and revenue expected to increase to 1.1%. However, I would not be surprised in Q4 estimates get revised downwards as analysts tend to overestimate future expectations. Going forward, I expect the S&P 500’s P/E ratio to contract to at least its 5-year average and for stock prices to fall. Defensive sectors should continue to outperform cyclicals, as fundamentals deteriorate.
-Appo Agbamu, CFA
Ahrvo Score (Overall Score)
1)Utilities (no change)
2)Technology (no change)
3)Consumer Staples (no change)
4)Industrials (no change)
5)Consumer Discretionary (⬆️1 spot)
6)Financials (⬇️1 spot)
7)Basic Materials (no change)
8)Health Care (no change)
9)Energy (no change)
Momentum Score
1)Utilities (no change)
2)Healthcare (no change)
3)Technology (⬆️1 spot)
4)Consumer Staples (⬇️1 spot)
5)Basic Materials (no change)
6)Industrials (no change)
7)Consumer Discretionary (⬆️1 spot)
8)Financials (⬇️1 spot)
9)Energy (no change)
Growth Score
1)Financials (no change)
2)Industrials (no change)
3)Technology (no change)
4)Consumer Discretionary (no change)
5)Consumer Staples (no change)
6)Utilities (no change)
7)Health Care (no change)
8)Basic Materials (no change)
9)Energy (no change)
Quality Score
1)Consumer Discretionary (no change)
2)Industrials (⬆️1 spot)
3)Consumer Staples (⬇️1 spot)
4)Technology (no change)
5)Utilities (no change)
6)Financials (no change)
7)Energy (no change)
8)Basic Materials (no change)
9)Health Care (no change)
Value Score
1)Industrials (no change)
2)Consumer Discretionary (no change)
3)Financials (no change)
4)Utilities (no change)
5)Energy (no change)
6)Consumer Staples (no change)
7)Basic Materials (⬆️1 spot)
8)Technology (⬇️1 spot)
9)Health Care (no change)
This material is for informational purposes only. Under no circumstances should any information or materials presented be used or construed as an offer to sell, or a solicitation of an offer to buy, any securities, financial instruments, investments or other services. Any investment made is at your sole discretion. There are many factors that you must consider when making an investment decision, including, but not limited to, product features, risks, whether or not an investment meets your investment objectives, risk tolerance, and other personalized factors. Investing in securities involves risks, and there is always the potential of losing your entire investment.
According to Factset, the net income margin (a measure of profitability) for S&P 500 companies has fallen to 9.4% based on reported Q1 results. This is below the 5-year average of 10.6%. The fall in profitability did not start this quarter. S&P 500 companies’ net income margins (profitability) have declined for the last four quarters. The largest decrease in profitability has been experienced by cyclical sectors- Financials (down 60%), Energy (down 250%), Consumer Discretionary (down 155%), Industrials (down 136%), and Materials (down 21%). Defensive sectors profitability has held up much better- Consumer Staples (down 3%), Healthcare (down 5%), Technology (down 3%), and Utilities (up 1%). Overall, analysts expect net margins to decrease in the 2nd quarter and make a rebound in the 3rd and 4th quarter of 2020.
For the first time in two weeks, all S&P 500 companies did not have a positive price performance. By and large, defensive sectors outperform cyclical sectors. Signaling that investors are becoming more cautious as the stock market continues to rise. Defensive sectors- healthcare (ticker: XLV), consumer staples (ticker: XLP), Utilities (ticker: XLU), and technology (ticker: XLK) returned 6.5% (outperform), 2.9% (outperform), -1.1% (underperform), and 2.9% (outperform). Cyclical sectors- consumer discretionary(ticker: XLY), energy (ticker: XLE), financial (ticker: XLF), materials (ticker: XLB), and industrial (ticker: XLI) returned 4.1% (outperform), -2.7% (underperform), -2.4% (underperform), -2.4%, and .2%, respectively. The S&P 500 (ticker: SPY) was up 2.3%.
Over the last month, the S&P 500 is up ~17% while the U.S. economy has lost 22 million jobs- more than erasing the jobs created over the last decade’s economic expansion. The decrease in earnings, coupled with the rise in stock prices has led to the S&P 500’s multiple to expand. Making stocks more expensive at a time when economic uncertainty is at an all-time high. The forward 12-month P/E ratio for the S&P 500 is 18.5x. This P/E ratio is above the 5-year average (16.7x) and above the 10-year average (15x). Analysts project that Q2 earnings will decline by -26.6% and a revenue decline of -5.7%. For Q3, analysts are projecting an earnings decline of -13.3% and a revenue decline of -1.6%. Things are expected to improve in the last quarter of the year, with earnings expected to fall -4.8% and revenue expected to increase to 1.1%. However, I would not be surprised in Q4 estimates get revised downwards as analysts tend to overestimate future expectations. Going forward, I expect the S&P 500’s P/E ratio to contract to at least its 5-year average and for stock prices to fall. Defensive sectors should continue to outperform cyclicals, as fundamentals deteriorate.
-Appo Agbamu, CFA
Ahrvo Score (Overall Score)
1)Utilities (no change)
2)Technology (no change)
3)Consumer Staples (no change)
4)Industrials (no change)
5)Consumer Discretionary (⬆️1 spot)
6)Financials (⬇️1 spot)
7)Basic Materials (no change)
8)Health Care (no change)
9)Energy (no change)
Momentum Score
1)Utilities (no change)
2)Healthcare (no change)
3)Technology (⬆️1 spot)
4)Consumer Staples (⬇️1 spot)
5)Basic Materials (no change)
6)Industrials (no change)
7)Consumer Discretionary (⬆️1 spot)
8)Financials (⬇️1 spot)
9)Energy (no change)
Growth Score
1)Financials (no change)
2)Industrials (no change)
3)Technology (no change)
4)Consumer Discretionary (no change)
5)Consumer Staples (no change)
6)Utilities (no change)
7)Health Care (no change)
8)Basic Materials (no change)
9)Energy (no change)
Quality Score
1)Consumer Discretionary (no change)
2)Industrials (⬆️1 spot)
3)Consumer Staples (⬇️1 spot)
4)Technology (no change)
5)Utilities (no change)
6)Financials (no change)
7)Energy (no change)
8)Basic Materials (no change)
9)Health Care (no change)
Value Score
1)Industrials (no change)
2)Consumer Discretionary (no change)
3)Financials (no change)
4)Utilities (no change)
5)Energy (no change)
6)Consumer Staples (no change)
7)Basic Materials (⬆️1 spot)
8)Technology (⬇️1 spot)
9)Health Care (no change)
This material is for informational purposes only. Under no circumstances should any information or materials presented be used or construed as an offer to sell, or a solicitation of an offer to buy, any securities, financial instruments, investments or other services. Any investment made is at your sole discretion. There are many factors that you must consider when making an investment decision, including, but not limited to, product features, risks, whether or not an investment meets your investment objectives, risk tolerance, and other personalized factors. Investing in securities involves risks, and there is always the potential of losing your entire investment.
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