S&P 500 Weekly Earnings Update: Forward 4-Quarter Growth Rate Highest Since Late 2014

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Thomson Reuters I/B/E/S data by the numbers:

  • Forward 4-quarter estimate: $132.93 vs. last week's $132.75
  • P/E ratio: 17(x)
  • PEG ratio: 2.5(x)
  • S&P 500 earnings yield: 5.85% vs. last week's 5.84%
  • Year-over-year Growth Rate of Forward Estimate: +6.75%, the highest since 12/5/14's 7.18%.

Comments/Analysis/Conclusion

There are two metrics this week that stick out: the year-over-year growth rate of the forward estimate is now the highest print at +6.75% in the last 112 weeks, or since 12/5/14. The 2nd is that the "S&P 500 earnings yield" is now higher for three consecutive weeks, which is indicative of a flat S&P 500 since mid-December and a rising forward 4-quarter estimate.

The drag that Energy has been on S&P 500 earnings since late 2014 is now ending.

S&P 500 earnings are telling a very positive story. Has the forward estimate been wrong in the past? Absolutely, but the trend of three straight years of $118 EPS for the S&P 500 is now on the verge of ending.

The $132 estimate for 2017 could be conservative if there is real tax reform and cash repatriation, BUT, we'll see how much is operating earnings.

The 2017 return estimate for the S&P 500 depends mainly on tangible and material tax reform (in my opinion). The issues around border tax, etc. and some of these confusing fiscal policy initiatives could be whitewashed or, at the very least, diminished with meaningful tax reform.

The problem is that US businesses are forced to - once again - delay and defer action until they see what the new US president and Congress come up with in this new year.

Jeff Miller in his weekly "Weighing the Week Ahead" blog post, asks the right question.

(This blog is about 2-3 articles behind updating readers on S&P 500 sectors. Will hopefully get to these posts this week.)

I do like this S&P 500 action where it is treading water in the face of mostly decent earnings news.

Nothing has changed about our "overweight US stocks, and underweight bonds" in the standard 60%/40% asset allocation portfolio.

Thanks for reading.