Bank of America Merrill Lynch is cutting its expectations on the S&P 500 Index, and therefore ultimately on the SDPR S&P 500 (NYSEMKT: SPY)i n its Macro/Investment Strategies call. Today’s downgrade was on earnings in 2012 AND in 2013. The good news is that the cut is only by 1.4% “to reflect the impact of lower commodity prices and slower global growth on corporate profits.”
BofA now sees S&P 500 EPS of $102 from $103.50 in 2012 and lowered to $109 from $110.50 in 2013. This implies S&P earnings growth of +4% in 2012 and growth of +7% in 2013.
The lower energy earnings forecasts primarily reflect the drop in oil prices. Chevron Corporation (NYSE: CVX) is down about 0.8% since last night’s guidance and it is the second largest energy component in the S&P behind Exxon Mobil Corporation (NYSE: XOM).
The firm is increasing its tech forecasts as a result of strong momentum for computers and peripherals based namely on Apple Inc. (NASDAQ: AAPL). This is an interesting observation because on an ex-Apple basis we noticed this week how the technology earnings season looks like it is being set up for disappointment. Maybe BofA thinks that the Windows 8 rollout by Microsoft Corporation (NASDAQ: MSFT) will be as big of a boost late in 2012 as many were hoping for earlier in 2012.
The bottom-up consensus expectations for the second quarter have dropped by 11% since last August and they have dropped by 4% since April. The research report noted, “We would expect 12% upside to our 2013 EPS forecast under the bull scenario, implying EPS of $122. This is less than 4% above the current consensus estimate and is another reason that expectations appear too optimistic for next year.”
Today’s news about an S&P target cut is not exactly massive by any means. It also still implies growth. As far as how this translates to earnings multiples, the S&P 500 Index is trading at 12.8-times the 2012 estimate and just under 12.2-times the 2013 estimate.
Read Also: Five Great Stocks Entering A Dividend Bubble
JON C. OGG
Is Your Money Earning the Best Possible Rate? (Sponsor)
Let’s face it: If your money is just sitting in a checking account, you’re losing value every single day. With most checking accounts offering little to no interest, the cash you worked so hard to save is gradually being eroded by inflation.
However, by moving that money into a high-yield savings account, you can put your cash to work, growing steadily with little to no effort on your part. In just a few clicks, you can set up a high-yield savings account and start earning interest immediately.
There are plenty of reputable banks and online platforms that offer competitive rates, and many of them come with zero fees and no minimum balance requirements. Click here to see if you’re earning the best possible rate on your money!
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
