For the third straight week, the S&P 500 traded near record high values, despite the fact that analysts have lowered earnings expectations for the first quarter on a per share basis by 3.1%. However, it is interesting to note that this 3.1% reduction in the bottom-up EPS estimate was below the trailing 1-year, 5-year, and 10-year averages for percentage declines in the bottom-up EPS estimate over the course of a quarter.
The estimated earnings growth rate for Q1 2013 is -0.7% this week, unchanged from last week’s growth rate. On December 31, the Q1 earnings growth rate for the index was 2.1%. Nine of the ten sectors have witnessed a decline in earnings growth rates since that date, led by the Materials, Information Technology, and Consumer Discretionary sectors. The only sector that has recorded a slight increase in projected earnings growth over this time is the Financials sector.
Part of the reason for the drop in expected earnings growth for the index is the high percentage of negative guidance issued by S&P 500 companies for Q1. Overall, 86 companies have issued negative EPS guidance for Q1 2013, while 24 companies have issued positive EPS guidance. Thus, 78% of the companies in the index that have issued EPS guidance have issued negative guidance. This percentage is well above the 5-year average of 61%.
After reporting earnings growth in Q4 (+4.2%), the index is expected to report a small decline in Q1 (-0.7%). If the final number is negative, it will mark the second time in the past three quarters that the index has reported a year-over-year decline in earnings growth. Four of the ten sectors are projected to report an earnings decrease for the quarter, led by the Energy (-5.0%) and Information Technology (-3.7%) sectors. On the other hand, the Utilities (7.7%), Financials (3.1%), and Consumer Discretionary (2.4%) sectors are predicted to see the highest earnings growth. The estimated revenue growth rate for the index for Q1 is 0.4%, down slightly from an estimate of 0.9% at the end of the quarter.
During the upcoming week, four S&P 500 companies are scheduled to report earnings for the first quarter.