Key points:
- Median S&P 500 sales are expected to grow 4% in Q4 2019, roughly in line with Q3. EPS is expected to grow 4%, versus 6% in Q3, but given normal ‘beats’ of 3%, we expect growth of 6–7%.
- Health Care is once again expected to have the best growth. Six sectors including Technology and Cyclical are expected to show EPS declines.
- S&P 600 growth is lower, with sales and EPS expected at 3% and -1%, respectively. Further, more than 100 small caps could show negative earnings, so the true growth number would be closer to -5%.
- No sectors are expected to show particularly strong earnings growth, but Financial and Health Care have solid sales growth estimates.
- Estimates continue to fall.
- Q4 2019 actual (operating) earnings are expected at -2% versus +8% six months ago.
- Q1/Q2 2020 estimates have come down sharply over the period as well.
- However, full-year 2020 estimates have only fallen from 11% to 9%, implying a sharp Q3/Q4 2020 rebound.
- We think the 2020 number is too high, but also think the market is clearly pricing in a rebound.
- Indices are extended currently. The S&P 500 is 10% above its 40-WMA. When it gets this far extended, it typically pauses or falls a bit over the forward four weeks but is higher still further out.
- We remain extremely positive in terms of sentiment given a sharply higher number of leaders (USFL count at a six-year high) and strong action in growth leaders. Still, we would trim very extended ideas ( AMD, NVDA, etc. ) and keep purchases to stocks coming out of new bases ( BL, NOC, PYPL, QCOM, AVLR, CMG, EL, etc. ).
