No this column is not about sustainability, climate targets or Co2 emissions. But about the fable that energy companies are a reason why broad market profits need not fall.
Energy profits
Earnings-per-share of US energy companies included in the S&P 500 Index are up more than 250% from a year ago. But this does not disguise a fall in profits of the rest of the companies.
Realised earnings-per-share for the S&P 500 Index have been just above US$205 since June. So in the past few months, profits have been pretty much flat.
But so has the S&P 500 Index excluding energy stocks. Well almost then, earnings-per-share have fallen 1.5% since June.
That is disproportionate to the earnings declines we have seen during recessions. Measured over the last three recessions, earnings-per-share came down 33% on average. And even during the China-related ‹growth scare› of 2015-2016 when a US recession failed to materialise, profits fell considerably.
Earnings expectations
But the fable does not end here. Earnings expectations for the S&P 500 Index, which continue to show positive growth, would also be skewed by energy.
Yet my Bloomberg says something quite different. Indeed, the difference in earnings growth between the energy sector and the rest of the market is virtually nil. Incidentally, that 8% expected earnings growth for the index as a whole seems too high to me in view of the impending growth slowdown that could reasonably culminate in another US recession.
Jeroen Blokland is founder of True Insights, a platform that provides independent research to build diversified multi-asset portfolios. Blokland was most recently head of multi-assets at Robeco. His chart of the week appears every Monday on Investment Officer Luxembourg.