Consensus estimates for first quarter 2015 S&P 500 earnings suggest that we are likely to experience the first negative quarter since 2009. Price/earnings ratios are often material in projecting future stock prices. Should we be worried?
Perhaps, but the outlook over the next 12 months may be more encouraging, and many investors put more weight on future expectations than historical results.
There is considerable evidence to suggest that 2015’s first quarter weakness includes a number of essentially non-recurring events. The two leading culprits are the sharp decrease in oil prices (that are expected to reduce energy sector earnings by 60%) and the stronger U.S. dollar. In addition, severe weather and the west coast dock workers labor dispute are not expected to be a continuing drag on corporate results.
Current, consensus quarterly estimates for the balance of 2015 suggest that Q2 is likely to be slightly better than flat, with improving results in Q3 and Q4.
If all of this materializes, the first quarter of 2016 could be the first of several unusually strong year-over-year quarterly comparisons.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®