Depressed crude oil prices continue to weigh heavily on expected S&P 500 corporate earnings, and to some extent, on the broader stock market. Although spot West Texas Intermediate (WTI) crude recently stabilized at $46-$48/barrel, anticipated S&P 500 earnings have yet to find a bottom. According to S&P Capital IQ consensus data, expected 2015 S&P 500 earnings have now dropped to $121.60 as of Jan. 26, from a more robust and much more investor-optimistic $132.67 as of mid-year 2014. Extending out to year-end 2016, anticipated S&P 500 quarterly earnings on average dropped by approximately $2.30 per share on Jan. 21, or by 6.5% from June 2014 expectations (see chart).
Energy is not the only sector seeing a steep drop in forward earnings expectations, though it has by far declined the most. Excluding telecommunication services, all sectors comprising the S&P 500 equity index have recorded a decline in average 2015 quarterly earnings growth compared to where expectations stood at mid-year 2014. Some sectors, such as information technology, financials, and consumer discretionary, are expected to fare better than the energy and materials sectors, according to S&P Capital IQ consensus earnings data (see table).
Undeniably, declining energy-related household expenditures represents a boost to disposable income, and by extension the personal consumption-driven U.S. economy. But the question remains: How much of a boost? The S&P Capital IQ Global Markets Intelligence (GMI) research group will continue to track various indicators of consumer confidence and U.S. retail sales for evidence that the windfall crude-oil derived tax cut is energizing household consumption patterns. As of year-end 2014, retail sales - excluding gasoline service station sales, recorded the second-highest monthly dollar level on record after declining slightly from November, but still representing a healthy 5.25% advance versus levels from a year ago. This is significant improvement over the 4.1% growth rate recorded at year-end 2013. Any subsequent improvement in consumer confidence and retail sales would suggest that consumers are spending some portion of their energy-related tax cut, implying positive news for prospective corporate earnings growth from the more economically sensitive sectors of the stock market.