Subscribe to receive this FREE daily commentary directly in your email
February 1, 2020
Stocks: AMZN, MSFT, AAPL
Macro: SPY, Earnings
MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN AAPL AND MSFT
Earnings results continue to pour in, and it’s not looking pretty. Through January 31, 227 companies have reported results, representing just about 45% of the entire S&P 500. Of those companies, roughly 67% have beaten earnings, while 25% have missed earnings, and 8% have met. That is well below the historical average since the second quarter of 2012 of 70%, 21%, and 9%, respectively. 
(Data from S&P Dow Jones)
If you are wondering how this could be, and you are as shocked as I am, it is because most of the widely followed and highly publicized companies, like Apple, Microsoft, and Amazon, have reported strong results. Likewise, the sectors have performed very well, with Technology and Consumer discretionary performing, with 87% of technology companies beating results and 77% of discretionary beating results. However, that number drops dramatically, with only 40% of Real Estate companies topping results, while only 50% of Energy and Utilities are beating results.
(Data from S&P Dow Jones)
Technology will have a much bigger weighing and importance in terms of overall earnings since it controls a more significant percentage of the total earnings powers of the S&P 500. It is probably one reason why the technology and growth sectors of the market outperforming the cyclical parts of the market.
So why are utilities the best performing sectoring to start the year? That’s easy, rates are falling, and sentiment has shifted to risk-off for now.
However, it does also suggests that growth is likely to continue to outperform.
Earnings estimates for 2019 continued to fall and projected to rise by around 3.65% this year to $157.12, which is down from $157.45 last week. Meanwhile, estimates for 2020 now show growth of 11.1% to $174.59, and to 11.25% for 2021 to $194.23.
Given the earnings revisions and the move lower in equity prices this week, due to coronavirus fears, we have seen earnings multiples come down. With the S&P 500 trading at 16.6 times one-year forward earnings, it happens to put the index well below its historical average of 17.46, and below the one-year forward 20 quarter moving average P/E of 17.4, while placing it closer to the low end of the historical lower stand deviation.
Based on this analysis, stocks are cheap. Valuations suggest that the S&P 500 could be worth between 3,157 to 3,594, with a mid-point of 3,376. However, consider the low-interest-rate environment, it seems more likely that over time the index will trade to the upper end of the range.
However, the significant risk here, as always, is the direction of the economy and GDP growth.
Have a good one
-Mike
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.
Subscribe to receive this FREE daily commentary directly in your email
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
Mega-Cap Volatility Persists Amid Tight Liquidity
Mott Capital's Market Chronicles October 30, 2025 11:47 AM