Unexpectedly Intriguing!
19 February 2015

Every three months, we take a snapshot of the expectations for future earnings in the S&P 500. As we'll show you today, expected earnings per share for the S&P 500 throughout 2015 have plummeted from the levels that Standard and Poor had projected they would be back in November 2014.

Forecasts for S&P 500 Trailing Twelve Month Earnings per Share, 2010-2015, Snapshot on 15 February 2015

The table below quantifies the carnage for what can now be described as the very sudden onset of an earnings recession, one that is currently forecast to run through the third quarter of 2015:

Expected Future Earnings per Share for the S&P 500
Future Quarter 2014-Q4 2015-Q1 2015-Q2 2015-Q3 2015-Q4
On 13 November 2014 $109.96 $118.23 $124.48 $131.07 $134.89
On 15 February 2015 $102.89 $103.34 $103.77 $105.00 $112.83
Change in Expectations -$7.07 -$14.89 -$20.71 -$26.07 -$22.86

Much of the decline in earnings expectations is tied to the decline in global oil prices, which primarily affects the oil industry, and also affects the business outlook for financial institutions and capital equipment manufacturers.

It is also interesting to note a comment by S&P's Howard Silverblatt regarding the extent to which a significant number of companies in the S&P 500 have reduced the number of shares that are outstanding in the market:

Q1, Q2 and Q3 2014 had 20% of the issues, 1-in-5, reducing their year-over-year share count by at least 4%, therefore adding at least a 4% tailwind to their current EPS.

If not for those actions to reduce the number of outstanding shares in the market in 2014, the earnings per share data would appear far worse, and the outcome for 2014-Q4, for which earnings are still in the process of being reported, would be even more negative. The same would be true for the index' dividends per share.

More significantly, since expectations for dividends per share are the primary driver for stock prices, it would be safe to say that the outcome for stock prices in 2014 would not have been as positive as they turned out to be in the absence of such financial engineering.

Data Source

Silverblatt, Howard. S&P Indices Market Attribute Series. S&P 500 Monthly Performance Data. S&P 500 Earnings and Estimate Report. [Excel Spreadsheet]. Last Updated 15 February 2015. Accessed 18 February 2015.

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