S&P 500 Earnings: Growth In Forward Estimate Continues To Hit All-Time Highs

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Includes: BXUB, BXUC, DMRL, EPS, IVV, PPLC, RSP, RVRS, RYARX, SDS, SFLA, SH, SPDN, SPLX, SPUU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU-OLD, SPXV, SPY, SSO, UPRO, USMC, VFINX, VOO
by: Brian Gilmartin, CFA

Here's the data:

  • Fwd 4-qtr est: $169.25 vs. last week's $169.24
  • PE ratio: 16.7x
  • PEG ratio: 0.75x
  • S&P 500 earnings yield: +5.97% vs. last week's +5.96%
  • Year-over-year growth of fwd estimate: +22.38% vs. last week's +22.27%

(Source: Thomson Reuters IBES This Week in Earnings for fwd est, the rest of data is internal)

When I started tracking the earnings data in the early 2000s, it took about a year for me to realize that the "rate of change" of the forward estimate needed to be tracked to understand how forward earnings were tracking relative to the estimates from one year ago.

Tax reform really changed the dynamics of estimate. For a long time - from 2012 through 2016, here is the progression of actual S&P 500 earnings growth for those 5 years:

  • 2016: +1%
  • 2015: -1%
  • 2014: +8%
  • 2013: +6%
  • 2012: +6%

This is a cumulative 20% return over 5 years or just 4% per year, average, even below the long-term average for the S&P 500 of 7% going back to the 1940s, and this was "post-2008". (A lot happened during these 5 years, including the crude oil collapse, commodities got crushed, the banking system saw special fines and penalties from Justice for years, the London Whale hit JPMorgan (NYSE:JPM), etc.)

Here is the "year-over-year" growth in the forward estimate since July 1, 2018:

  • 8/10/18: +22.38%
  • 8/3/18: +22.27%
  • 7/27/18: +22.23%
  • 7/20/18: +21.48%
  • 7/13/18: +21.14%
  • 7/6/18: +20.85%
  • 6/29/18: +21.84%

To be frank with readers, I'm looking for reasons to be bearish, but every time the data is put up, underlying strength is seen.

The forward estimate comprises Q3 '18 through Q2 '19 and thus half of 2019 is being incorporated in one data point.

2018 is turning out to be a lot like 1994: 6 Fed rate increases, white-hot earnings growth where S&P 500 earnings grew over 20%, and the S&P 500 returned 1% on the year.

The S&P 500's "forward-estimate" looks solid.

The S&P 500 "earnings yield" of 5.97% looks cheap too. Any time the S&P 500 has traded with a 6% earnings yield, it has paid to buy and hold.

The S&P 500 could use a good flush, but even sentiment is hardly wildly optimistic, using AAII's 36.4% of those surveyed as being "bullish", which per the Bespoke Report is still below the long-term average (i.e., a positive for those long the market).

(Jeff Miller of www.dashofinisght.com had a timely post this week, "The Calm Before the Storm).