With the S&P 500 down 8% over the past month — a period encompassing a significant chunk of first-quarter earnings season — it would be easy for investors to blame the benchmark equity gauge’s recent weakness on slack earnings reports and outlooks.
Investors willing to dig a little deeper will actually find some pleasant surprises — as long as Amazon (NASDAQ:AMZN) is excluded from the equation.
“At the company level, Amazon.com is the largest detractor to earnings growth for the S&P 500 for the first quarter due to the unusually large negative earnings surprise reported by the company. On April 28, Amazon.com reported (GAAP) EPS of -$7.56 for Q1 2022, compared to the mean EPS estimate of $8.35,” notes FactSet’s John Butters.
As of May 2, Amazon is the third-largest component in the cap-weighted version of the S&P 500 at a weight of 3.10%. That is to say, with e-commerce dragging on the earnings front, exchange traded funds such as the Invesco S&P 500 Equal Weight ETF (RSP) are important in this conversation.
As Butters points out, the S&P 500’s first-quarter earnings growth including Amazon’s dismal report is 7.1%. Toss Amazon out, and the index’s earnings growth for the first three months of 2022 is 10.1%.
“Amazon.com is an example of a company that faced a difficult year-over-year comparison and macroeconomic headwinds. In Q1 2021, Amazon.com reported EPS of $15.79, which is the second-highest EPS number reported by the company,” adds the FactSet analyst.
RSP, the largest equal-weight ETF, allocates 11.92% of its weight to the consumer discretionary sector — Amazon’s home group. That’s 37 basis points more than the cap-weighted S&P 500 devotes to that group. However, as an equal-weight ETF, RSP’s Amazon exposure is significantly reduced. RSP sports an Amazon weight of just 0.17%, as of May 2.
The difference is material. Over the past month, RSP is outperforming cap-weighted equivalents by 230 basis points. That’s something to consider because Amazon could face near-term headwinds.
“The pandemic and subsequent war in Ukraine have brought unusual growth and challenges…our teams are squarely focused on improving productivity and cost efficiencies throughout our fulfillment network. We know how to do this and have done it before. This make take some time, particularly as we work through ongoing inflationary and supply chain pressures,” the company said in its earnings press release.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.