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The S&P 500 (NYSEARCA:SPY) finally broke through 1,600 following a better than expected jobs report. More importantly, the S&P 500 is continuing its multi-month rally through Q1 earnings season, which was not the case last year. Q1 earnings are beating estimates at an impressive rate, but revenue growth is weak. Nonetheless, investors are showing optimism as the S&P 500's P/E multiple continues to inch up. The S&P 500 is trading at a high multiple compared to the recent past, but not compared to the last few decades. In this article, I will look at the S&P 500's valuation, earnings and analyst estimates. I will also focus on the top 100 companies in the S&P 500 and discuss the leaders and laggards. The S&P 500 is resilient, but under the surface there is data to support both the bulls and the bears.

S&P 500 Price Action

The S&P 500 closed the week at 1,614, a new record high.

Last year Q1 earnings season marked the end of a multi-month rally, but this year's Q1 earnings are not driving investors to sell.

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(Source: FreeStockCharts.com)

S&P 500's Q1 2013 Results So Far

As of April 30, 307 companies in the S&P 500 reported earnings, and 208 beat estimates. If this beat rate is maintained through the end of earnings season, it would be the highest beat rate in the last few quarters.

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The latest data from Standard & Poor's is from April 30, but Factset released data through May 3.

According to Factset, 404 companies reported earnings, and 72% beat estimates (source: Factset). However, only 47% reported sales that beat estimates, which is below the trend from the last few quarters.

According to Factset, the "blended earnings growth rate" for Q1 2013 is 3.2%, but the "blended revenue growth rate" is -0.1%.

S&P 500 P/E Multiple & Earnings Estimates

The following are several ways to look at the S&P 500's P/E multiple.

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As I noted last week, this data comes from Standard & Poor's and its quarterly estimates may be calculated slightly differently than the historical numbers, so the comparison is not perfect. It is important to note that analyst estimates may be wrong, for any number of reasons. I use estimates as a gauge of sentiment and do not assume that they will be accurate. I am more interested in changes to estimates than the precise numbers.

Interestingly, the estimates for Q1 and Q4 increased slightly from the prior week, but the estimates for Q2 and Q3 dropped. Analysts may be reshuffling their estimates and pushing incremental growth out to the end of the year.

The estimates for 2013 and 2014 still seem high, and I expect them to come down further.

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The next four charts put the earnings and valuation in perspective.

The first chart is very important, but can be used by both the bulls and bears. The S&P 500's P/E multiple is high compared to the last few years, but low compared to the last few decades. Depending on the timeframe, the S&P 500 is expensive or cheap.

The real question is whether earnings growth is accelerating or decelerating. If there is hope for a pick up in earnings growth, investors will likely bid up the market. It looks like Q1 earnings are providing incremental optimism, but it is still too early to tell.

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(Source: Standard & Poor's)

Focus On The Top 100 In The S&P 500

Each week, I focus on the top 100 companies in the S&P 500, which currently comprise 64.5% of the overall value of the index.

Below are four charts about the top 100 companies in the S&P 500: (1) 5-day price change, (2) forward P/E multiples, (3) analysis of companies with FY1 P/E multiples lower or higher than the median for the group and (4) changes in analyst estimates for FY1 over the last 7 and 30 days. I want to highlight a few key points.

Regarding the price action, it is interesting to note the laggards last week, especially in the context of the big move on Friday.

The healthcare sector, which had been one of the leading sectors of the S&P 500, produced many of the laggards last week, including Pfizer (NYSE:PFE), Merck (NYSE:MRK), AbbVie (NYSE:ABBV) and Eli Lilly (NYSE:LLY).

Some of the banks were also weak, especially JPMorgan (NYSE:JPM) and Bank of America (NYSE:BAC).

The price action of JPMorgan was puzzling on Friday. Like the rest of the market, JPMorgan opened the day with a nice gain, but reversed course midday to close with a -1.06% loss. There were press reports about new regulatory problems for JPMorgan, which may have caused the weak price action. I had a position in JPMorgan, which I sold on Friday, but I am still bullish on the company for the long-term.

On a positive note, Apple (NASDAQ:AAPL) was one of the leading stocks last week. Apple continues its rebound following its earnings release.

Although Apple's earnings estimates continued to decline last week (fourth chart), the revisions were much smaller than the previous weeks and months. We may be approaching a bottom in the negative revisions to Apple's earnings estimates. It would make sense that Apple's stock price started to rebound in anticipation of an end of the negative sentiment.

The second and third charts again show that stocks in the consumer staples and healthcare sectors are trading at multiples higher than the average for the group. On the flip side, cyclicals and tech are trading at low P/E multiples. This is a recurring trend and not much change last week.

The negative revisions to Amazon's (NASDAQ:AMZN) earnings estimates are notable (fourth chart). Amazon trades at a very high P/E, and investors are not valuing the company based on near term earnings. However, the big negative revisions could mark a change in sentiment. Maybe, Amazon is experiencing a Apple moment.

Amazon's stock price dropped on Q1 earnings, but bounced back in the last few days. It will be interesting to see if Amazon can continue its multi-year rally with the negative earnings revisions.

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(Source: Yahoo Finance)

Conclusions

Q1 earnings are beating estimates at an impressive rate. Estimates were cut going into earnings, but that seems to happen every quarter. The revenue results are less impressive.

The S&P 500 is continuing to rally through earnings season, which was not the case at this time last year. Earnings growth seems higher than the last few quarters and may be giving investors incremental optimism about the rest of the year. There are other encouraging factors, such as jobs growth and Federal Reserve policy.

Under the surface, it is interesting to watch the rotations in leadership. Apple was one of the big winners last week, and it has been a while since Apple led the S&P 500. On the negative side, the healthcare sector was weak.

Bulls and bears can look at the S&P 500's P/E valuation and use it to make their case. I tend to be on the bullish side. The S&P 500 is experiencing multiple expansion, but it is still trading at a reasonable valuation compared to the long term trend. The important thing is if earnings growth is accelerating or decelerating.

As the S&P 500 continues to climb the downside risks increase. At some point there will be a correction, but Q1 earnings do not seem like a catalyst for a selloff.

Notes

The tables exclude the following: P/E multiples greater than 100 and P/E less Median values greater than 50. Additionally, some information about Amazon, Berkshire Hathaway, AbbVie, Mondelez and Abbott Laboratories was not available.

The mean and median figures presented in this article represent the unweighted mean and median of the metrics for the 100 components in the SPDR S&P 500 ETF Trust and are not capitalization-weighted like the index itself.

Earnings Estimates are based on data from Yahoo Finance as of May 4, 2013.

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Source: S&P 500 Rallies Through 1,600: Update On Earnings, Valuation And Estimates