Earnings Update

• Of the 24 companies in the S&P 500 reporting Q1 earnings thus far, 20 have reported above the mean estimate.
• The S&P 500 is expected to show a 4.8% decline in Q1 earnings.
• The Energy sector is expected to show the greatest declines, Health Care and Financial sectors, the highest growth rates.
• The strong $US and Oil prices are the key factors for earnings weakness.
• Over the past 4 years, an average of 72% of companies in the S&P 500 have reported quarterly earnings above the mean estimate.
• In other words, it is expected that, despite an anticipated decline in earnings, it will likely be less than expected.
• The current markets have built in "upside surprises".
• This week, 35 of the S&P 500 companies will report earnings.
• The current 12 month forward Price to Earnings (P/E) Ratio is 16.8. The 10 year average is 14.1.

Click on this chart to enlarge

• From the above chart, it is easy to see how low interest rates are driving this asset class (large US companies) to levels where the current value of buying into it is questionable.
• We are carefully monitoring this key fundamental.