Earnings season for the first quarter of 2020 kicked off yesterday, with 21 S&P 500 companies reporting results. Of the 21 companies, 16 reported positive EPS surprise and 15 reported a positive revenue surprise. For Q1, 72 S&P 500 companies have issued negative EPS guidance and 32 have issued positive EPS guidance. 54 companies report(ed) earnings today, including major banks JP Morgan (profits down 69%) and Wells Fargo (profits down 99%). Both banks have set aside billions in reserves to cover potential lending losses from the coronavirus pandemic. S&P 500 earnings are expected to decline by 10% year-over-year, with revenue growth expected to be 1.0%
According to Factset, analysts expect the S&P 500 to return 17.8% over the next year (S&P 500 price target of 3239). Financials (+23.3%) and Consumer Discretionary (+18.6%) are the only sectors expected to outperform the market. Technology, Industrials, Healthcare, Utilities, Materials, Energy, and Consumer Staples are expected to return 17.4%, 17.1%, 16.5%, 14.6%, 14.5%, 14.2%, 14.1%, and 11.2%, respectively. Similar to earnings expectations, analysts tend to overestimate the expected return of the market. Over the last decade, analysts have overshot their price target on the S&P 500 by 2.3% on average. Over the last 15 years, that number is much higher, with analysts’ predictions 9.8% higher than actual performance results. Going forward, market/sector price targets will likely be revised downward.
While all S&P sectors were up last week, the performance of cyclical and defensive sectors were relatively mixed. However, cyclicals continued to outperform. Materials (ticker: XLB), Consumer Discretionary (ticker: XLY), Financials (ticker: XLF), Utilities (ticker: XLU), and Energy (ticker: XLE) outperformed the S&P 500 (+11%), returning 18.0%, 15.4%, 14.7%, 13.7, and 13.3% respectively. Technology (ticker: XLK), Industrials (ticker: XLI), Healthcare (ticker: XLU), and Consumer Staples (ticker: XLP) underperformed, returning 10.7%, 8.9%, 8.3%, and 4.3%, respectively.
Over the last two weeks, cyclical sectors have outperformed, making up ground from the substantial losses suffered during the market sell-off in March. However, on a year-to-date basis, cyclical sectors (w/the exception of consumer discretionary) have substantially underperformed the broader market. Given their sensitivity to economic activity, coupled with the fact that we are likely in the early innings of an economic and earnings recession, I expect cyclicals to underperform going forward (w/ the exception of consumer discretionary). Defensives should continue to perform well, with the exception of consumer staples stocks, which seem to be priced to perfection. It will be interesting to see how our stock, industry, and sectors models adjust with the slew of earnings information coming out over the next few weeks.
-Appo Agbamu, CFA
What our models say…
Week-over-week change: 04/06/2020 vs. 04/13/2020
Ahrvo Score (Overall Score)
1)Utilities (no change)
2)Technology (no change)
3)Consumer Staples (no change)
4)Industrials (no change)
5)Financials (no change)
6)Consumer Discretionary (no change)
7)Basic Materials (no change)
8)Health Care (no change)
9)Energy (no change)
Momentum Score
1)Utilities (no change)
2)Healthcare (⬆️2 spots)
3)Consumer Staples (⬇️1 spot)
4)Technology (⬇️1 spot)
5)Basic Materials (no change)
6)Industrials (no change)
7)Financials (no change)
8)Consumer Discretionary (no change)
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)Consumer Staples (no change)
3)Industrials (no change)
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)Technology (⬆️1 spot)
8)Basic Materials (⬇️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, analysts expect the S&P 500 to return 17.8% over the next year (S&P 500 price target of 3239). Financials (+23.3%) and Consumer Discretionary (+18.6%) are the only sectors expected to outperform the market. Technology, Industrials, Healthcare, Utilities, Materials, Energy, and Consumer Staples are expected to return 17.4%, 17.1%, 16.5%, 14.6%, 14.5%, 14.2%, 14.1%, and 11.2%, respectively. Similar to earnings expectations, analysts tend to overestimate the expected return of the market. Over the last decade, analysts have overshot their price target on the S&P 500 by 2.3% on average. Over the last 15 years, that number is much higher, with analysts’ predictions 9.8% higher than actual performance results. Going forward, market/sector price targets will likely be revised downward.
While all S&P sectors were up last week, the performance of cyclical and defensive sectors were relatively mixed. However, cyclicals continued to outperform. Materials (ticker: XLB), Consumer Discretionary (ticker: XLY), Financials (ticker: XLF), Utilities (ticker: XLU), and Energy (ticker: XLE) outperformed the S&P 500 (+11%), returning 18.0%, 15.4%, 14.7%, 13.7, and 13.3% respectively. Technology (ticker: XLK), Industrials (ticker: XLI), Healthcare (ticker: XLU), and Consumer Staples (ticker: XLP) underperformed, returning 10.7%, 8.9%, 8.3%, and 4.3%, respectively.
Over the last two weeks, cyclical sectors have outperformed, making up ground from the substantial losses suffered during the market sell-off in March. However, on a year-to-date basis, cyclical sectors (w/the exception of consumer discretionary) have substantially underperformed the broader market. Given their sensitivity to economic activity, coupled with the fact that we are likely in the early innings of an economic and earnings recession, I expect cyclicals to underperform going forward (w/ the exception of consumer discretionary). Defensives should continue to perform well, with the exception of consumer staples stocks, which seem to be priced to perfection. It will be interesting to see how our stock, industry, and sectors models adjust with the slew of earnings information coming out over the next few weeks.
-Appo Agbamu, CFA
What our models say…
Week-over-week change: 04/06/2020 vs. 04/13/2020
Ahrvo Score (Overall Score)
1)Utilities (no change)
2)Technology (no change)
3)Consumer Staples (no change)
4)Industrials (no change)
5)Financials (no change)
6)Consumer Discretionary (no change)
7)Basic Materials (no change)
8)Health Care (no change)
9)Energy (no change)
Momentum Score
1)Utilities (no change)
2)Healthcare (⬆️2 spots)
3)Consumer Staples (⬇️1 spot)
4)Technology (⬇️1 spot)
5)Basic Materials (no change)
6)Industrials (no change)
7)Financials (no change)
8)Consumer Discretionary (no change)
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)Consumer Staples (no change)
3)Industrials (no change)
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)Technology (⬆️1 spot)
8)Basic Materials (⬇️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.