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S&P 500 Earnings Should Be OK, Watching Crude Oil, Top 10 Holdings As Of 3/31

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YTD the SPY is down 7.54%, whereas the Barclay’s Aggregate is -8.46%, per Morningstar knowledge.

Given Ukraine, inflation, sharply larger crude oil costs, worries about nuke utilization in Ukraine, and better rates of interest I’m starting to assume the capital markets have held up fairly properly this yr, all issues contemplating.

However, the May ’22 Fed / FOMC / Powell assertion loom giant.

JPMorgan (JPM) and Citigroup (C) had fairly poor earnings final week, and each face powerful compares in Q2 ’22 as properly. Technology and financials each have one other quarter of powerful numbers to face down in Q2 ’22, from the Q2 ’21 outcomes.

Tesla reviews this coming week, too.

SP 500 earnings knowledge:

  • The ahead 4-quarter estimate slid to $233.83 from $234.18 final week;
  • The ahead PE is eighteen.8x as “PE compression” continues to make the inventory resemble an uphill bike experience;
  • The SP 500 earnings yield jumped to five.32% from final week’s 5.22%;
  • Per the IBES knowledge Q1 ’22 income progress remains to be anticipated to be within the vary of +10% – 11%;

Revision knowledge is weaker: a little bit worrisome

S&P 500

One factor that frightened me after updating this desk over the weekend is that the variety of “positive revisions” hasn’t began to tick larger. Hopefully that will likely be this coming week, 4/18/22 – 4/22/22. The off months in 1 / 4, like March, June, September and December are usually quieter when it comes to revision exercise. Readers can see how on this desk that complete revisions rise sharply throughout the bulk of earnings season, which this quarter is between April eleventh and mid-May ’22. (Refinitiv supplies this knowledge on a rolling 4-week foundation. The above spreadsheet is my very own. Readers ought to do not forget that SP 500 earnings within the first two quarters of 2021 have been a number of the strongest progress charges since 2009 therefore (once more) the SP 500 is dealing with powerful comparisons.)

The Crude Oil chart:

Crude Oil

Chris Kimble, (@kimbleCharting) positioned in Cincinnati the place I went to undergrad, and founding father of Kimble Charting Solutions printed this chart final week. I do assume for the common American nonetheless, crude oil and gasoline are the face of inflation for the patron and crude appears to be at a key technical juncture.

If crude drops again underneath $90 and relying on the severity of the decline, I might assume it takes at the least a little bit strain off Powell on the May assembly and supplies a psychological enhance to the US client.

If crude strikes again to the $120 space, that may proceed to maintain a moist blanket over all the things however vitality sector sentiment.

Top 10 Client Holdings as of three/31/22:

  • Blackrock Strategic Income bond fund: -2.92% YTD return;
  • Microsoft (MSFT): -8.14% YTD return;
  • RSP (equal-weight ETF): -2.69%;
  • Tesla (TSLA): +1.97% YTD return;
  • JP Morgan Income fund -2.46% YTD return;
  • Schwab (SCHW) +0.49% YTD return;
  • Amazon (AMZN): -2.23% YTD return;
  • Oakmark International (OAKIX): -8.69% YTD return;
  • JPMorgan: -13.28% YTD return;
  • Schwab cash market (SWVXX):
  • All return knowledge as of three/31/22 and courtesy of Morningstar

Summary / conclusion: The Energy sector faces a lot more durable comps for the remainder of 2022, after Q1 ’22 is reported, which is a part of the piano sitting on the backs of the Technology and Financial sector as we lap the primary half of 2021. My personal opinion is SP 500 earnings needs to be high quality “more normal” relative to the pandemic interval from Q2 ’20 via Q2 ’21, and will look extra sensible within the again half of 2022.

So how does this assist readers make investments or what does this imply for portfolio development ? Energy, primary supplies, actual property and utilities in complete mix for roughly 12% – 13% of the SP 500’s market capitalization versus the tech sector’s 27% by itself. Commodities rule proper now however they have a tendency to flame out rapidly and the publicly-traded commodity firms are likely to have poor returns-on-invested capital over lengthy intervals of time.

Value continues to outperform Growth with the SPYV -0.75% YTD, whereas the SPYG (Growth) ETF, down 3.5% this week and down 14% YTD.

I’m disillusioned within the YTD returns of some financials for the reason that monetary sector is shopper’s largest worth chubby.

The subsequent three week are crucial for earnings with the tech heavyweights staring to report the week of April twenty fifth.

The most compelling stat circulating within the monetary information media (for me anyway) is the 100% rise within the SP 500 from the March ’20 lows to the anniversary in March ’22. That’s too far, too quick. A number of technicians nonetheless cite the three,800 as a 1/third retracement of that rally as a pure correction level. I’m not a technician, however I for certain don’t ignore the science and pure assist ranges.

A 50 foundation level hike in May together with quantitative tightening and I don’t assume the SP 500 will deal with that properly.

Take this all with a grain of salt and substantial skepticism. Past efficiency isn’t any assure of future outcomes and capital market circumstances can change very in a short time, for each higher and worse.

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Editor’s Note: The abstract bullets for this text have been chosen by Seeking Alpha editors.

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