By the Numbers:
The forward 4-quarter estimate fell this week to $123.51 from last week’s $123.82.
The P.E ratio fell to 15.5(x) from last week’s 16(x) on the SP 500’s 3.4% weekly decline.
The PEG ratio remains negative.
The SP 500 earnings yield jumped to 6.43% this week, it’s highest level since – guess when ? – October 24, ’14’s earnings yield of 6.49%.
The y/y growth of the above forward estimate fell to -1.95% this week. The growth rate of the forward estimate only fell below -2% once in recent memory, and that was 4/2/15 and was likely due to worries over the stronger dollar as Q1 ’15 earnings were awaited. Still that forward growth rate has been remarkably stable, and yet still negative for 4 – 5 months.
In Q1 ’15, SP 500 earnings ex-Energy and Apple grew +11%. In Q2 ’15 those same earnings grew +9%.
A forward estimate of 15(x) – 16(x) for the SP 500 doesn’t look that salty when core SP 500 earnings are still close to double-digit growth.
Analysis / conclusion: We’ll get a handful of earnings reports from companies with an August quarter end over, over the next few weeks, but unless there are positive or negative pre-announcements, the earnings related news is likely to be quiet.
The SP 500 earnings yield popped this week above 6.4%, which is the highest print since last October ’14. However looking at the spreadsheet from last year, the SP 500 earnings yield was above 6% for most of August, September and then through the month of October, 2014.
For readers, the Fed Model is the construct or market model that connects the SP 500 earnings yield to the 10-year Treasury yield, and the model continues to scream relative value for the SP 500 over Treasuries, but obviously this is distorted by ZIRP and monetary policy off the ’09 low.
The two technical levels for the SP 500 I am watching:
- October ’14 low: 1,820.66
- Aug ’15 low: 1,867.01
Friday, September 4, 2015’s SP 500 close was 1,921.22.
The Treasury yield of interest:
Many people do not like his abrasiveness, but Rick Santelli has been talking consistently about how the 2-year Treasury yield has not closed above 0.742% for several years. A 2-year Treasury yield close 0.75% (75 basis points) or above would be significant if the technical’s are to be believed.
That 2-year Treasury yield is probably the best real-time economic indicator of Fed monetary policy right now.
More to come over the Labor Day weekend.