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SPX Earnings & Technical Update

10/28/2013

Last Friday, October 25, the S&P 500® Index (SPX) (Figure 1) established both a new all-time closing high of 1759.77 and an intraday high of 1759.82. Investors should continue to utilize the SPX technical formation to manage risk. The previous high of 1729.86 from September 19 is now a critical near-term support area and should be used as a risk point of reference.

The SPX chart for 2013 is supported with a pristinely bullish series of five higher corrective lows. That supportive pattern would be breached with price action below the recent October 9 corrective trough of 1646.47.

Many industry professionals are currently debating the sustainability of the 23.39% year-to-date SPX advance, along with the quality of the current SPX earnings season. To date, the evidence clearly suggests that earnings are good enough not to derail the SPX appreciation.

Let’s take a look at the earnings released to date by 244 SPX companies...

SPX Sector

Reported

Yet to Report

EPS Growth

Sales Growth

Overall

244

254

7.31%

3.58%

Financials

49

32

7.04%

0.15%

Industrials

39

24

7.00%

1.53%

Technology

38

29

11.58%

3.71%

Consumer Discretionary

33

49

10.03%

11.72%

Health Care

25

29

0.25%

3.72%

Consumer Staples

21

19

3.21%

2.35%

Materials

17

14

25.38%

4.81%

Energy

15

28

11.99%

9.93%

Utilities

4

27

-0.37%

2.04%

Telecom

3

3

5.65%

3.44%


SPX Sector

Reported

Yet to Report

EPS Surprise

Sales Surprise

Overall

244

254

4.87%

0.13%

Financials

49

32

7.06%

-0.54%

Industrials

39

24

3.03%

-0.84%

Technology

38

29

5.94%

0.28%

Consumer Discretionary

33

49

5.92%

1.77%

Health Care

25

29

4.42%

1.23%

Consumer Staples

21

19

1.10%

0.07%

Materials

17

14

12.09%

0.68%

Energy

15

28

3.02%

-0.29%

Utilities

4

27

-0.72%

-5.90%

Telecom

3

3

2.46%

0.15%

Source: Bloomberg


Other metrics to consider...

  • Quarter to date performance across the nine major SPX sectors is very broad, with consumer staples (+5.58%) the leading sector and health care (+4.25%) the weakest.

Consumer Staples

5.58%

Materials

5.31%

Industrials

5.07%

Utilities

4.90%

Financials

4.80%

Technology

4.56%

Energy

4.45%

Consumer Discretionary

4.42%

Health Care

4.25%

Source: Bloomberg
  • Earnings for the quarter currently being reported are running at $26.61
  • 2013 earnings estimates are now at $110.61
  • 2014 earnings estimates are at $122.66, with flat multiple expansion that would translate to a 14.35 P/E at the current SPX 1759.77 closing price
  • The SPX now trades with a P/E of 15.9 for 2013 earnings, completing two full years of multiple expansion that began at 11.5 in early October 2011
  • Current SPX profit margin is 8.76%; last quarter it was 8.54%
  • Current SPX gross margin is 32.00%; last quarter it was 31.96%
  • Current SPX operating margin is 13.36%; last quarter it was 13.30%
  • SPX domestic cyclicals are +31% year to date, while global cyclicals are +20%
  • In the upcoming week, another 126 SPX companies will report earnings – Here are some to keep an eye on:
    • Monday, October 28 – AAPL, HIG. MRK
    • Tuesday, October 29 – CMI, PFE, OXY
    • Wednesday, October 30 – SBUX, V, MAR
    • Thursday, October 31 – XOM, MA, EL
    • Friday, November 1 – CVX, BRK

Figure 1 S&P 500 Index (SPX), Year to Date
10-28 Terranova 1.1
Source: Bloomberg

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.