S&P 500 Operating Earnings By Sector
Chart of the Week for August 28 - September 3, 2009
The chart above illustrates operating earnings per share (“EPS”) for each of the ten S&P 500 Index ("Index") sectors, as well as for the overall Index. Two time periods are shown. The “2008A” series represents actual, reported earnings during the 2008 calendar year. The “2009E” series represents estimated earnings for the 2009 calendar year, as calculated by S&P analysts as of August 18, 2009.
EPS is defined as a company’s net income divided by its number of stock shares outstanding. Typically reported on a quarterly basis, EPS serves as a useful barometer of the health of the overall economy, particularly when calculated for broader sectors or indices.
In 2008, when the stock market collapsed and economies across the globe went into recession, the Index EPS fell 40% from the prior year. The Financials sector was a very large detractor during 2008, dropping 193%. In 2009, EPS for the general index is expected to increase 9.9%. S&P analysts estimate that the Consumer Discretionary sector will lead the charge, increasing EPS by 67.3%, while the Energy sector will lag, falling by 67.5%. It is interesting to note that EPS for the Energy sector is expected to increase by 94.6% in 2010, according to S&P analysts. This volatility is evidence of the cyclical nature of the Energy sector.
Investors should note that EPS estimates for 2009 and 2010 are just that – estimates. It is impossible to accurately predict exactly how the economy will behave going forward. In addition, there is an inherent "survivorship bias" built into the EPS numbers reported for the Index, since the membership of the Index is not static. In other words, the companies included in the Index change over time. Companies that perform poorly are likely to be removed from the index, while companies that perform well are likely to be added. This has the effect of inflating reported EPS results for the Index.
This illustration was compiled by information from outside sources. These companies are not affiliated with ICMA-RC. This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing.
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