The Coming 'Bump' In The Forward Estimate And The TLT

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Includes: DHVW, DMRL, EPS, FTA, IVE, IVV, IVW, PPLC, RPG, RPV, RSP, RVRS, RYARX, SDS, SFLA, SH, SPDN, SPLX, SPUU, SPVU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXV, SPY, SPYG, SPYV, SSO, TLT, UPRO, USMC, VFINX, VOO, VOOG, VOOV
by: Brian Gilmartin, CFA

An excellent technician, Gary Morrow, as well as a long-time acquaintance, with his TLT chart from 10/1/18. The 3.12% and 3.25% area continue to be strong resistance for the 10-year and 30-year Treasury respectively. When those levels break through, or when we see the 10 and 30-year Treasury close above those yields on good volume, we might see some real pain in the bond markets.

The new "forward 4-quarter" estimate for the S@P 500 with this week's report will be somewhere between $173-$174 per share based on the quarterly bottom-up estimate that we track each week on this blog.

3rd and 4th quarter earnings will be fine - the pundits are talking tariffs and the stronger dollar's impact on the S&P 500, but I expect better revenue growth will offset much of the worry.

Here is the latest update on the S&P 500 earnings from this weekend (dated 9/28/18):

  • Fwd 4-qtr est: $168.72 down a little from the previous week's $169.07
  • P/E ratio: 17x
  • PEG ratio: 0.76x
  • S&P 500 earnings yield: 5.79% vs. 5.77% from last week
  • Year-over-year growth of fwd est: +22.6%

Summary/conclusion: While the assumption is that 3rd and 4th quarter S&P 500 earnings will be fine, how stocks trade after reporting earnings is all that matters. (This is why we track the "forward 4-quarter estimate for readers.) Bespoke Research noted in their weekly Bespoke Report last Friday night, that despite strong 2nd quarter earnings, many stocks traded lower after reporting earnings (maybe a "sell the news" reaction?). Bespoke specifically noted that September's earnings reports saw 105 companies disclose their quarterly results, with an average "beat rate" for earnings per share for Q2'18, and yet fell an average of 1.22% on their reporting day.

That could be seasonal too - September is one of the worst months of the year historically for monthly returns AND a lot of retailers report in September and that sector has struggled.

Note the quarterly bump in the S&P 500 estimate this week: from $168 to $173-$174.

More to come on earnings this week.

Thanks for reading.