As of Friday November 18th, Q3 results from 36 retailers in the S&P 500 index have been reported out of the 43 total, which combined, makes up approximately 94% of the sector’s total market cap in the index. Overall earnings for these 36 retails are up +7.4% compared to the same period last year, and on +4.9% higher revenues, with a relatively low 61.1% . This beat the EPS estimates and a very low 44.4% coming ahead of top-line expectations.
To date we have Q3 results from 476 S&P 500 members or 95.2% of the index’s total membership. Total earnings for these 476 companies are up +4.0% from the same period last year on +2.6% higher revenues, with 73.1% beating EPS estimates and 55.5% coming ahead of revenue estimates. Combining the actual results from the 476 S&P 500 members with estimates from the still-to-come 24 index members, total Q3 earnings are now expected to be up +3.6% from the same period last year on +1.5% higher revenues. The +3.6% earnings growth in Q3 is the first positive growth for the index after 5 quarters of back-to-back declines.
Looking at the overall market sentiment, it appears to be out of balance and that typically means more corrective pressure or congestion until we see some evidence of balance between the sectors. The semiconductors are leading and has just passed it's 52wk high in Friday's session.
As compared to the Health Care sector, which is most likely to continue dropping due to the uncertainty of the direction the Trump administration will go with health care.
Tech is already at the 50 day and it’s not going to be too difficult to break below this level, since institutional traders do not like to trigger program buying until stocks are trading strongly above the 50 day.
The blue chips should see downside as a result of corrective pressure coming into the overall stock market. The financials need a major catalyst to continue moving higher and consumer stocks are trading below the 200 day moving average…this confirms that the overall market is grossly out of balance and long term momentum based rallies usually cannot sustain themselves when individual sectors are out of balance for prolonged period of time.
Expect blue chips and commodity stocks to begin putting pressure on the stock market, till we see financials fall back inline with pre-election price levels.
The VIX index, which measures the expected volatility of the stock market is still moving lower. The enthusiasm, or the Trump rally as we called it, that propelled the Dow Jones industrial average to consecutive all-time highs last week and gave the S&P 500 index its biggest weekly gain in two years, seems to be over. The rally, which lost some of its momentum in last Friday's session pulling the S&P 500 slightly lower, has continued its downward move through the moving averages I still think it’s going to take a few more weeks for the overall market sentiment to completely absorb the impact that the political shift will have on various financial sectors of the economy.