S&P 500 earnings should be okay, watching crude oil, top 10 holdings as of 3/31

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Year-to-date, the SPY is down 7.54%, while Barclay’s Aggregate is -8.46%, according to Morningstar data.

Given Ukraine, inflation, soaring crude oil prices, concerns about the use of nuclear weapons in Ukraine and higher interest rates, I’m beginning to think that the capital markets have held up pretty well this year, all things considered.

However, the May 22 Fed/FOMC/Powell statement weighs heavily.

JPMorgan (JPM) and Citigroup (C) saw fairly weak earnings last week, and both also face tough comparisons in Q2 22 as well. Technology and Financials both have another tough quarter of numbers to contend with in Q2 22, starting with Q2 21 results.

Tesla also reports next week.

SP 500 Earnings Data:

  • The 4-quarter forward estimate slipped to $233.83 from $234.18 last week;
  • Front PE is 18.8x as the “PE compression” continues to make the stock look like an uphill bike ride;
  • SP 500 earnings yield jumped to 5.32% from 5.22% last week;
  • According to IBES data for the first quarter of 2022, revenue growth is still expected to be between +10% and 11%;

Revision data is lower: a bit worrying

S&P500

One thing that worried me after updating this board over the weekend is that the number of “positive reviews” hasn’t started to increase. Hopefully it will be next week, 4/18/22 to 4/22/22. The slow months of a quarter, such as March, June, September and December, tend to be quieter in terms of review activity. Readers can see how, in this chart, total revisions rise sharply for most of the earnings season, which this quarter runs from April 11 through mid-May 22. (Refinitiv provides this data on a rolling basis The above spreadsheet is mine. Readers should remember that SP 500 earnings in the first two quarters of 2021 were among the highest growth rates since 2009, hence (again) the SP 500 faces tough comparisons.)

The crude oil chart:

Crude oil

Chris Kimble, (@kimbleCharting) located in Cincinnati where I did my undergrad, and founder of Kimble Charting Solutions posted this chart last week. I still think for the average American, crude oil and gasoline are the face of consumer inflation and crude seems to be at a key technical turning point.

If crude drops back below $90 and depending on the severity of the drop, I think that takes at least some pressure off Powell at the May meeting and gives the US consumer a psychological boost.

Should Crude move back into the $120 zone, it would continue to maintain a wet blanket on everything but Energy sector sentiment.

The 10 main client assets as of 03/31/22:

  • Blackrock Strategic Income Bond Fund: YTD return of -2.92%;
  • Microsoft (MSFT): -8.14% YTD return;
  • RSP (equal weight ETF): -2.69%;
  • Tesla (TSLA): return of +1.97% since the beginning of the year;
  • JP Morgan Income Fund -2.46% YTD return;
  • Schwab (SCW) +0.49% YTD return;
  • Amazon (AMZN): -2.23% YTD return;
  • Oakmark International (OAKIX): -8.69% return since the beginning of the year;
  • JPMorgan: -13.28% return since the beginning of the year;
  • Schwab Money Market (SWVXX):
  • All data back as of 3/31/22 and courtesy of Morningstar

Summary / Conclusion: The energy sector faces much more difficult compositions for the remainder of 2022, following the release of the first quarter of 2022, which is part of the piano sitting on the back of the technology and financials sector as we let’s shoot the first half of 2021. My own opinion is SP 500 revenue should be much “more normal” compared to the pandemic period of Q2 ’20 to Q2 ’21, and should look more realistic in the second half of 2022.

So how does this help readers invest or what does it mean for portfolio construction? Energy, basic materials, real estate and utilities together account for around 12-13% of the SP 500’s market capitalization compared to 27% for the technology sector alone. Commodities currently dominate, but they tend to die out quickly and publicly traded commodity companies tend to have low returns on investment over long periods of time.

Stock continues to outperform growth with SPYV -0.75% YTD, while SPYG (growth) ETF is down 3.5% this week and 14% YTD ‘year.

I am disappointed with the year-to-date returns of some financial stocks, as the financials sector is the largest overweight in client value.

The next three weeks are critical for earnings, with tech heavyweights beginning to report the week of April 25.

The most compelling stat circulating in the financial media (to me anyway) is the 100% rise in the SP 500 from the March 20 lows to the March 22 anniversary. That’s too far, too quick. Many technicians are still citing the 3,800 as a 1/3 retracement of this rally as a natural correction point. I’m no techie, but I’m certainly aware of the levels of scientific and natural support.

A 50 basis point hike in May accompanied by quantitative tightening and I don’t think the SP 500 will fare as well.

Take all of this with a grain of salt and substantial skepticism. Past performance is not indicative of future results and capital market conditions can change very very quickly, for better or for worse.

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Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.

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