As we prepare to embark on another journey through the tri-monthly ordeal we call earnings season, it is clear from the outset that expectations are lower than they've been in years. If analysts are correct in their predictions, there will be no profit growth for the S&P 500 this quarter. Zero. Zip. Nada.
That's not to say certain companies, like Apple (AAPL), won't increase their profits, or that others won't post huge declines, but the sum of the parts, so to speak, is set to leave overall profits exactly where they were a year ago and will mark the worst growth since Q3 2009, as Factset senior earnings analyst John Butters discusses in the attached video.
"If you're looking at key themes this quarter, one of them to watch is the impact of Apple," Butters says, pointing out that if that one stock were removed from the index, the growth rate would fall to -1.5%, and even that is a conservative estimate because it assumes Apple will only deliver in-line results of 50% EPS growth.
Apple not only distorts the profit growth, it distorts the index perf0rmance too. While it's $600 billion market value gives it a nearly 5% weighting in the index, that stat grows to 13% of the Computer Hardware Index, and a teetering 19.5% of the Nasdaq 100 (^NDX).
The point is, if you don't have at least 5% of your large-cap funds in shares of Apple, there's a good chance you are - and will be - under performing and chasing this market - even when it's falling.
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- John Butters