To date 177 of 499 companies have released Q1 2009 earnings. On average, earnings have fallen by 32.6% from the same period in 2008. That figure, however, masks the fact that 49 (28%) of 177 companies have reported positive earnings growth. It seems the analysts have had an especially difficult time in estimating earnings this time around. Of the 177 companies, only two met the analyst consensus, while 118 (66.7%) exceeded expectations. In Wall Street parlance, beating estimates is referred to as a positive earnings surprise; doing worse than the estimate is a negative earnings surprise. The 2/3 ratio is pretty common during earnings season.
The chart below shows the earnings change for each of the broad S & P 500 sectors. The best performing, versus 12 months ago, has been Health Care and Utilities. Worst has been Materials and Consumer Discretionary. In the usual perversion of stock performance versus earnings, there is little correlation, as the yellow bars below show. On that basis, the best performing sectors have been Information Technology, Materials, and Consumer Discretionary, the last two being the worst on an earnings growth basis.
Perhaps the following chart of earnings surprises–positive versus negative–can be illuminating with respect to earnings versus stock performance. In this chart, he green bars show the positive surprises, red the negative. Here, one can explain some of the performance results. In Materials, there have been no negative surprises, and Consumer Discretionary has seen a fair ratio of the former to the latter. Still, Staples, Energy, and Health Care each look better on these bases.
The answer comes down to a concept called sector rotation, where investors move–or rotate–into the sectors that haven’t necessarily done well, but that will do well. In a version of what-have-you-done-for-me-lately, it’s what-will-you-do-for-me-next, and it’s the high-beta groups like Consumer Discretionary, Materials, and Information Technology that have historically outperformed coming out of bear markets.