May Equity Review - Pressure, pricing and the price of power

The future is already here — it's just not evenly distributed.
— William Gibson, in the San Francisco Examiner on 19 April, 1992.

Q1 reporting closed on one of the strongest seasons in recent memory and the manner of its strength is more instructive than the headline. Blended earnings growth of 28.6%, against the 13.1% pencilled in at quarter-end, and an aggregate surprise factor of 16.7%, the widest since Q1 2021, did not arrive evenly. The march higher in the index’s growth rate was concentrated in Communication Services, Consumer Discretionary and Energy, and the breadth told its own story: the equal-weighted S&P 500 trailed the cap-weighted benchmark by 2.64 percentage points in May and only three of eleven sectors finished the month higher.

This was a season that rewarded structural alignment and treated the merely cyclical with suspicion.

The single most asymmetric revision story belongs to Energy. The sector experienced upward EPS NTM revisions through the season as Iran-conflict oil pricing lifted upstream economics. However, Energy was the weakest-performing S&P 500 sector in May, declining 6.08%. The divergence between forward earnings momentum and price action is a reminder that EPS revision and price performance are not the same variable, and that timing the monetisation of an upward revision cycle requires a view on both the catalyst's durability and whether the revision has already cleared the consensus bar.

This report will analyse:

• S&P 500 earnings growth and estimates for Q1
• Sectoral revisions for Q1 and net profit margins
• Sector-specific monthly performance for US and European equities