Will S&P 500 Earnings Roll Over, Or Will The S&P 500 Rally From Here?


That is the whole dynamic in one simple sentence.

2019 S&P 500 earnings expectations have been expecting slower growth for some time but now that expected earnings growth for next year has been reduced to 8%.

Transports look ugly, made more so by the action in XPO (NYSEMKT:XPO), the trucking firm. FedEx (NYSE:FDX) and UPS (NYSE:UPS) are through their 200-week moving averages, which is typically a good place to buy a beaten-down sector. (Just started building a position in FDX this week.)

During the 2015-2016 correction, there were more than a few similarities to today’s correction:

1.) China weakness and a devalued yuan and strong dollar were seen through the summer, fall of 2015.

2.) Crude oil was still in the process of correction from its 2014 peak near $90, ultimately ending up bottoming at $28 in Feb. 16.

3.) Banks and Transports were ugly then, as they are now. Transports saw no benefit from the drop in crude then or now.

4.) The big difference between the two corrections is that Tech stayed relatively strong and didn’t correct until January ’16 and then came apart in the 5-week period just prior to the Feb. ’16 market bottom.

FedEx reports next week, and here is what worries me a little (or a lot). Hopefully Seeking Alpha doesn’t mind but I wrote this FedEx earnings preview last weekend and just since publication of this article on Monday, December 10th, here is how FDX’s EPS estimates have changed:

  • 2021: $22.76 to $22.57
  • 2020: $20.16 to $20.04
  • 2019: $17.40 to $17.36
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It doesn’t look like much, but the numbers are coming down in front of the release for a company that is a pretty effective “tell” for the US economy. Still, as the article details, the stock is probably undervalued coming into earnings and unless estimates fall off a cliff, the price discounts a lot of issues with the sector.

Summary/Conclusion: The very bearish AAII sentiment data released Thursday morning is preventing too many changes from made right now. The action in the Industrial and Transport sectors – not to mention the banks – is downright depressing. As was written on this blog this weekend, the S&P 500 earnings data – when looking at both Q4 ’18 and 2019 – has been pretty stable. Maybe that changes shortly. I still think this is a normal correction in an ongoing bull market.

Take this blog post as an informed opinion, and opinions can change quickly.

Thanks for reading.

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