Random Thoughts

Investor optimism has been supported by a better-than-expected start to the Q2 EPS reporting season, as well as the ongoing possibility of a rate cut by the end of the month.

S&P 500’s Q2 EPS growth is now projected to be off just 0.2%, according to S&P Capital IQ consensus earnings estimates, after being down 2.0% a week earlier.

The lifting of spirits was assisted by the financials sector in general and the banking industry in particular. Specifically, the S&P 1500 financials sector saw a 1.2% improvement in Q2 EPS growth estimates as of 7/19 versus the estimate as of the end of the quarter, aided by 6.6% increase in EPS forecasts by the diversified banking group. Yet that sub-industry’s gain wasn’t the highest in EPS reassessments.

Of non-REIT sub-industries in the S&P 1500, systems software (+9.6%), reinsurance (+8.0%) and multi-sector holdings (+7.6%) recorded superior adjustments. In all, 42% of the 146 sub-industries in the S&P 1500 saw flat-to-higher Q2 EPS growth estimates.

Not all groups fared as well, as 58% saw lowered revisions with aluminum (-32.8%), forest products (-16.1%), integrated oil & gas (-14.8%) and gold (-13.7%) faring the worst. And with the S&P 500 now approaching a positive performance in Q2, it appears as if the “500” stands a good chance of recording its 30th consecutive quarter in which actual results exceeded end-of-quarter estimates.

Yet to be determined is whether the EPS recession has been postponed or cancelled, since the S&P 500’s Q3 EPS projections have slipped to a decline of 1.1% from an earlier estimated shortfall of 0.2%.

In addition, seven of its 11 sectors have seen reductions to their Q3 estimates, while the market’s full-year results eased to a gain of 1.7% from a previously forecasted advance of 1.9%.