Starting on Monday, the Dow Jones Industrial Average will feature the addition of three new components. Goldman Sachs, NIKE, and Visa will be added to the index, while Alcoa, Bank of America, and Hewlett-Packard will be removed from the index. It is interesting to note that the addition of these new components will actually result in lower expected earnings growth for the DJIA over the next several quarters. This is mainly due to the removal of Bank of America from the index, as the company (as of today) is projected to be the largest contributor to earnings growth for the DJIA in four of the next five quarters.
The estimated earnings growth rate for the S&P 500 for Q3 2013 is 3.4% this week, unchanged from last week’s growth rate of 3.4%. Small downward revisions to estimates for companies in multiple sectors were mainly offset by the upside earnings surprise reported by Oracle during the week. On June 30, the Q3 earnings growth rate for the index was 6.5%. All ten sectors have witnessed a decline in earnings growth rates since that date, led by the Materials sector.
Part of the reason for the drop in expected earnings growth is the high percentage of negative guidance issued by S&P 500 companies for Q3. Overall, 88 companies have issued negative EPS guidance for Q3 2013, while 19 companies have issued positive EPS guidance. Thus, 82% 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 62%.
At the sector level, eight of the ten sectors are projected to report a year-over-year increase in earnings for the quarter, led by the Financials (10.4%) and Consumer Discretionary (6.2%) sectors. The only two sectors projected to report a year-over-year drop in earnings are the Health Care (-1.4%) and Energy (-0.8%) sectors. The estimated revenue growth rate for the index for Q3 is 2.6%, down from an estimate of 3.0% at the start of the quarter.
During the upcoming week, ten S&P 500 companies are scheduled to report earnings for Q3 2013.