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The S&P 500 (SPY) closed at 1,634, another record, and has been rallying throughout Q1 earnings season. Over 90% of the S&P 500 reported earnings and the results are good, but not great. Nonetheless, the numbers are driving investors to continue to bid up the market. The S&P 500 is overextended on a short term timeframe and may be due for a pause. However, the S&P 500's earnings and valuation seem to support the bullish case on a longer timeframe. In this article I will look at these dynamics in more detail and focus on the top 100 companies in the S&P 500.

S&P 500 Price Action

The S&P 500's record high from Friday also marks the return to the top of the uptrend channel from last November. The S&P 500 is overextended, but that is not necessarily bearish. A few times the S&P 500 has worked off overextended conditions by trading sideways before another leg higher.

Importantly, the S&P 500 continued to move higher throughout Q1 earnings season, which is in sharp contrast to the price action last year.

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(Source: FreeStockCharts.com)

S&P 500's Q1 2013 Results So Far

As of May 9, 453 companies in the S&P 500 reported earnings. If the beat rate of 66% if maintained for the remainder of earnings season it would be the highest beat rate in a few quarters.

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Factset updated its numbers after 451 companies reported. According to Factset, the "blended earnings growth rate" for Q1 is 3.2%. However, the "blended revenue growth rate" for Q1 is -0.2%.

The lack of revenue growth should be a concern for investors. However, I wonder how indicative these numbers are. There was a lot of fiscal drag in Q1 with the payroll tax and sequester. The sequester will continue to impact the economy, but it seems like the peak impact is the first half of the year. Absent the fiscal drag, corporate earnings would have looked better.

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 previously in several articles, 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.

The forward estimates from S&P came down last week. This may not be bearish since the estimates for 2013 and 2014 seem very high and are due to come down some more.

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The following graphs put the S&P 500's valuation and earnings in perspective. Although the S&P 500's multiple is inching up, it only seems high compared to the last few years. Compared to the last few decades, the S&P 500's multiple is still low.

Also, the earnings for the S&P 500 have been stagnant for a few quarters. At this point it will not take a lot for Q1 earnings to look good. Adjusting for the fiscal drag would make Q1 earnings look even better compared to the last few quarters.

Please note that the last data points in the third and fourth graphs are estimates and will change as the numbers come in. Therefore, these graphs are useful to get a general sense of the earnings picture, but the estimates should not be relied on precisely.

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(Source: Standard & Poor's)

Focus On The Top 100 In The S&P 500

Every week I focus on the top 100 companies in the S&P 500, which comprise almost 2/3 of the 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.

The first graph of the price action may be showing signs of a rotation. For most of Q1 consumer staples and healthcare stocks led the way up. However, last week there were a number of laggards in these sectors, including Pfizer (PFE), Philip Morris (PM), McDonald's (MCD), Gilead (GILD) and Mondelez (MDLZ).

The leading stocks included Google (GOOG) and Bank of America (BAC).

For many weeks I have been talking about the negative revisions to Apple's (AAPL) earnings estimates. However, for the first time in a long time, there were no cuts to FY1 earnings estimates over the last 7 days (see the fourth chart). Here is a look at Apple's earnings estimates for the next 2 fiscal quarters and 2 fiscal years in more detail.

(Source: Yahoo Finance)

I do not want to call a bottom in Apple's earnings expectations. Estimates may continue to decline and the cuts usually come around earnings releases, not mid quarter. However, it is important to note a possible change in sentiment about Apple.

Furthermore, Apple is again the largest company in the S&P 500 and represents 2.96% of the index, so what happens with Apple has much more of an impact on the S&P 500 than most other companies.

Regarding earnings estimates, Bank of America's numbers are also notable. Estimates declined for Bank of America, but this seems to be related to the legal settlements. Overall, resolving the legal issues is a positive for Bank of America, even if there is an earnings hit.

Here are the full charts.

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(Source: Yahoo Finance)

Conclusions

The S&P 500 reached another record high. In the short term it may be overextended, but the bulls can use the S&P 500's earnings and valuation to support their case.

Earnings growth in Q1 has been good (but not great). It may have been better without the fiscal drag. We will find out more in the coming quarters.

Although the S&P 500's P/E valuation may seem stretched compared to the last few years, it is still low compared to the last few decades.

Importantly, the S&P 500 has rallied through Q1 earnings season, which seems to indicate that the data has been good enough and that investors are receiving incremental reasons to be optimistic about the rest of the year.

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 12, 2013.

Disclaimer: The opinions expressed above should not be construed as investment advice. This article is not tailored to specific investment objectives. Reliance on this information for the purpose of buying the securities to which this information relates may expose a person to significant risk. The information contained in this article is not intended to make any offer, inducement, invitation or commitment to purchase, subscribe to, provide or sell any securities, service or product or to provide any recommendations on which one should rely for financial, securities, investment or other advice or to take any decision. Readers are encouraged to seek individual advice from their personal, financial, legal and other advisers before making any investment or financial decisions or purchasing any financial, securities or investment related service or product.

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Source: S&P 500 At Another Record: Update On Earnings, Valuation And Estimates

Additional disclosure: I may trade any of the securities mentioned in this article at any time, including in the next 72 hours. Also, I am long AAPL through call options, not common stock.