The future of Wall Street is looking brighter, at least if the recent guidance of S&P 500 companies means anything. While most companies in the index issued negative guidance for earnings per share for the second quarter, the number of companies that did is the lowest in more than two years.
Will negative guides in the S&P 500 increase?
Senior Earnings Analyst John Butters of FactSet reports that so far, 80 S&P 500 companies have issued negative earnings per share guidance while 27 have issued positive guidance. Of course the guidance numbers from all of the companies are not yet in, but if no more negative guides are added to the 80, then that will be the lowest number since the fourth quarter of 2012 (Graphs in this article are courtesy FactSet).
Exclusive: York Capital to wind down European funds, spin out Asian funds
York Capital Management has decided to focus on longer-duration assets like private equity, private debt and collateralized loan obligations. The firm also plans to wind down its European hedge funds and spin out its Asian fund. Q3 2020 hedge fund letters, conferences and more York announces structural and operational changes York Chairman and CEO Jamie Read More
As you can see from the graph, this is a meaningful decline from the previous quarter when 85 S&P 500 companies issued negative guidance. There was also a good quarter over quarter increase in the number of positive guides issued, although this number remains lower than the third and fourth quarters of 2014.
Still room for the S&P 500 guidance to improve
Even though the second quarter marked a positive shift in guidance for EPS, FactSet pointed out that the number of companies issuing negative guidance for the second quarter remains higher the five-year quarterly average of 78. Also the number of companies that issued positive guidance for earnings per share remains under the five-year average of 33.
In terms of percentages, Butters reported that 75% of S&P 500 companies issued negative EPS guidance (80 of 107). That’s higher than the 69% five-year average for a quarter. However, it’s better than the 81% recorded in the first quarter.
Healthcare, materials, IT seeing positive shifts
According to Butters, three sectors are leading the quarter over quarter positive shift in earnings per share guidance. He noted that the Healthcare sector saw the number of positive guides increase by four, making it the sector with the biggest increase in positive guides for earnings per share. In second place was the Information Technology sector with an increase of three and the Materials sector with an increase of two.
Healthcare and Materials also have the biggest quarter over quarter declines in the number of companies issuing negative guides for earnings per share.
Consumer Discretionary slumps, Healthcare rises
Looking at individual sectors, Butters noted that Consumer Discretionary saw four more companies issue negative guidance for the second quarter compared to the sector’s five-year average. The sector also saw the biggest decrease in the number of companies issuing positive guidance for earnings per share at seven. Industrials also saw a decline of seven companies issuing positive guidance for the quarter. Also 92% of Industrial companies issued negative second quarter EPS guidance.
At the other end of the spectrum, Healthcare saw the biggest increase in positive guidance-issuing companies at five compared to its five-year average. The sector also saw the biggest decrease in negative guidance-issuing companies compared to its five year average. Materials matched Healthcare in this area.