If you run a growth fund, then your job just got really easy. That's because there is practically no growth to be had any more, and what little there is can be found hiding in plain sight. According to John Butters, senior earnings analyst at Factset, 7 of the 10 sectors in the S&P 500 are pegged to deliver earnings declines in the first quarter. The three exceptions, he says in the attached video, are Industrials, Financials and Tech, the last of which is actually masking a 5% decline thanks to the contribution of one stock, Apple (AAPL).
On the flip side, you have the Materials Sector, which is forecast to deliver the sharpest drop in profits or a 15% decline. Yet, as evidenced by Alcoa's (AA) ''better than expected" results and share price rally, the fact that its earning fell 65% from a year ago and revenues were basically flat, is not really meaningful to investors.
Speaking of revenues, this is another area of concern for Butters, since unlike earnings, all 10 sectors are expected to deliver sales growth of about 4%.
"This shows, a little bit, that higher costs are playing a roll in terms of hitting the bottom line this quarter. When you see all 10 sectors seeing revenue growth but 7 of 10 sectors seeing earnings down, that's likely the result of higher costs," he says.
I would argue that it also reflects the fact that most of the easy cutting has been done and that the recovery that wasn't has left companies in a bit of a bind.
Adding to this ''conundrum," Butters says, is the fact that earnings came down about 3% as stocks went up about 9%. "You do see that dichotomy from time to time, but you don't usually see it to this magnitude.''
The final area that could trap investors, Butters says, may not even take its toll for another nine months. That's because he's waiting to see if 4th quarter growth estimates, which are currently tapped at 16%, ever succumb to gravity like the forecasts for the 1st, 2nd and 3rd quarters did.
If you thought the sudden-death finish at The Masters was exciting, just wait till you see how stocks pegged to deliver double-digit growth perform in a no-growth environment.