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2018 Estimated S&P 500 Earnings Growth Rises To 18%

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by: Brian Gilmartin, CFA

Last week, this blog post was shown in order for readers to get a sense for how fast S&P 500 earnings were accelerating.

With the Thomson Reuters data out this Friday, the 2018 "estimated" S&P 500 earnings growth rate is now 17.7% (let's say 18%), up from last week's 16%.

What's more, with the drop in the key benchmark this week, the P.E on the S&P 500 of 17.8(x) is now exactly 1x the market's expected growth rate this year.

On a P.E to growth basis (PEG), the S&P 500 still looks reasonably valued.

Another stat that jumped out from the Thomson Reuters I/B/E/S report is that 80% of the S&P 500 companies that have reported Q4 '17 financial results so far have beaten consensus REVENUE estimates. Normally just 60% beat on the top line estimate.

That's a big number, but retail is still to report through February '18, so maybe that comes in a little.

The S&P 500 earnings yield actually jumped from 5.35% last week to 5.62% this week.

What does it all mean with the big market drop this week?

The 10-year Treasury yield has risen from 2.40% on 12.31.17 to 2.85 as of the market close today, 2.2.18.

Remember in 1994, the S&P 500 earnings grew 20% while the benchmark returned 1% that year on the back of six Greenspan-led Fed funds rate hikes.

This correction was badly needed - stay focused long game of S&P 500 earnings growth.

Here are expected S&P 500 earnings growth rates for the next three years:

  • 2019: +10%
  • 2018: +17.8%
  • 2017: +12%

While a lot of bank write-offs happened post-2008, the last time we saw S&P 500 earnings growth like this was 2004-2006 and some of that was driven by the Nasdaq recovery.

Will update how 2018 estimates have changed by sector this weekend.

Readers should find that interesting.

Thanks for reading.