Name: Investors Roundtable: The S&P 500 is Flat for the Year
Uploaded: 2015-12-08
Duration: 4 min 52 s
Description: And could be stuck there for a while.

[ MUSIC ] The S & P 500 is essentially flat for the year. Earnings from first quarter through the third quarter are basically flat, continuing on through the fourth quarter based on revisions. And revenues are actually down 4 %. So, it's an interesting place to be. You have stock market multiples that are slightly elevated, but that's because we all know rates are very low, probably not going to be high any time soon. And this is kind of where we're stuck. is anyone here surprised that we're flat on the year, haven't made because progress because earnings are not, is that a show to anyone here? And do we think that this is probably the way things continue for a while? Jim, if you want to start? Well it's even worse than you said Josh, because earnings not only are down, but actual gap earnings, I know that's an antiquated notion, gap earnings are back below $ 100 for the S & P. And importantly the dispersion is even ont s great as your think. Ex oil, earnings are up slightly, and without buy backs they'd be down per share. And that's the other key thing, we've got financial engineering keeping earnings per share up for a while, so. [ CROSSTALK ] But I would say the other thing is that we have all the other companies talking about how they're making earnings in the rest of the world but when they're bringing them back into dollars. There down, so part of it is the drop in oil part of it is the stronger dollar, you take those two things out, we don't have stronger earnings growth but we actually do have some earnings growth and I think that is actually really important as well. Part of its financial engineering but part of it is also these two negative factors. << Right, do you have a view on that? Well, I think what we're seeing, and I've obviously focused more on technology. And I think we're still seeing relatively strong growth. The underlying investment- One of the few- One of the few areas, and I think, obviously, tech gets a lot of focus because of high, sometimes actual, but often perceived, multiples. But if you look across almost every sector of GDP, nothing has had the growth that that sector has had over the last five or six years. And they do look at it more broadly, when we just look at the market more broadly. The other thing we see is that non- tech revenue growth has been challenging, a lot of earnings growth has come from expenses and it's been productive. You can only, that story you can only do for so long. Yeah, like about 20 years. Right [ LAUGH ]. And so I think that from, we are not seeing any slowdown in fundamental tech spending. I think we're seeing some of the macro headwinds, there's increasingly, in currency headwinds, I should say, which is that a large portion of our companies now are generating a significant amount of revenue internationally. Okay. You've said that multiples have pretty much done a lot of the heavy lifting and without earnings growth it's really tough to make the case for the Bulls from where we are right now. Where, and this is for everyone, where will that earnings growth come from? Obviously technology, but even that seems an increasingly smaller group of technology companies. Benefiting greatly without a lot of participation. So if not tech, is it healthcare, is it retail? Where would we see come earnings growth come from? Well, I think it's partly that we don't expect to see such a large drop in oil prices over the next year. Nor do we expect such a strong rise in the dollar. So if you just get this to negative influence is flattening out, then the rest of earnings growth, which, yes, is partly due to financial engineering, but is also due to continued cost cutting and to some of the mergers we're seeing where companies are saying, hey, the way to get more earnings growth is to combine the companies, because we're not seeing the revenue growth. I think we see single digit earnings across next year if those two factors hold. So it's not so much across the sectors, it's more if you just get rid of the negatives, and they're flat. Exactly, then what you get is single digit earnings throughout. Savita, what's the view from Bank of America Merril Lynch on earnings growth? Multiple growth, etc. Sure. So I think that next year could be a better year than this year for those two reasons. I mean, really we're lapping the Dollar. So if the Dollar rises, we're forecasting about a half as much Dollar strength next year as what we saw this year. Here, that's less of a drag on S & P earnings. If oil prices stabilize, which is an open question, that could be again a removal of this massive headwind this year that we saw oil prices cut in half. So those are two Hopes that we see driving earnings growth next year. We're not really looking for a massive acceleration in the economy. Right. So that is where I think tech and sectors with secular growth really shine. And you know what we've seen over this bull market is that it's been led by secular growth companies rather than Cyclicals have taken it on the chin because the cycle has never re- accelerated. It's actually decelerated. So that's one area of weakness that we think could continue. [ MUSIC ]