As of 5/31/16, 97% of S&P 500 companies have reported their earnings for the first quarter of 2016. According to S&P Dow Jones Indices, of those that have reported we have operating earnings per share of $24.09 which is a decline of -6.7% from one year ago. The 12 month operating earnings per share is $98.73 for the index, a decline of -11.45% from one year ago and a decline of -1.71% from the previous quarter. This marks the fourth consecutive quarter of declining year-over-year earnings and the fifth consecutive quarter of year-over-year revenue declines.
Source: S&P Dow Jones Indices
The decline in earnings has largely been contributed to two things: the Dollar strength and the decline in Energy related activities. A stronger US dollar negatively impacts earnings for those companies that generate revenue outside the US. In fact, approximately 48% of revenues for S&P 500 companies are derived from outside the US. Another contributor to the decline in earnings is the precipitous decline in oil and gas prices especially for those energy related companies. The Energy sector makes up about 7.3% of the S&P 500 Index.
According to S&P Dow Jones Indices, 12 month operating earnings are estimated at $114.77 for 2016 with the expectation that oil prices will settle and the sector will start to contribute to earnings growth for the S&P 500 index. If that is the case, we can expect a fairly robust bull market for the remainder of 2016. However, there are several headwinds that can make the markets move in one direction or another such as the pending presidential election, Brexit, any Fed action, or another test of the lows for energy prices.
At Covington, our investment philosophy is driven from the idea that investing comes from a planning perspective. What are your goals? What are your resources? Do you have the resources to achieve those goals? We feel the key to long term success is driven by setting reasonable and measurable goals, being disciplined, and not getting caught up with the hype in the media. Every client situation is unique and we strive to develop an investment strategy that is right for your personal risk tolerance and situation.
Disclaimer: Past performance is not a guarantee of future results. All investments contain risk and may lose value. This information is solely the opinion of Covington Investment Advisors, Inc. and should not be used as investment advice or a solicitation to buy or sell any particular security or adopt any investment strategy.