SP 500 Earnings: Forward 4-Qtr Growth rate hits +10.58%; Still Not Seeing P.E Expansion

The year-over-year growth rate of the SP 500 forward earnings estimate tracks the “expected” forward growth rate of SP 500 earnings, vs that same expected rate one year prior.

While Thomson Reuters gives the forward 4-quarter estimate each week, which for this quarter represents the sum of the bottom-up estimates from Q4 ’17 through Q3 ’18, it is up to me to track the numbers and compare them to prior year’s data.

Today, November 3, 2017, the “forward 4-quarter” estimate of $142.16 grew 10.58% vs the same estimate on November 4th, 2016.

That 10.58% is a new post-2008 record for the growth rate of the SP 500 forward estimate.

In essence, what it tells us is that the “one-year forward” SP 500 earnings estimate is growing at a slowly accelerating pace.

Here is how the forward estimate has tracked since late September ’17 and its expected growth rate:

  • 11/3/17: $142.16, +10.58%
  • 10/27/17: $142.10, +10.18%
  • 10/20/17: $142.25, +10.13%
  • 10/13/17: $141.90, +9.81%
  • 10/6/17: $141.87, +9.52%
  • 9/29/17: $137.62, +10%

Source: Thomson Reuters data, and internal spreadsheet

The point of this for readers is that – while earnings data isn’t a timing tool, or acts with precision relative to the market, usually when you get an increasing growth rate like we’ve seen, we should get “P.E expansion” in the SP 500.

Except we haven’t.

You never hear this from any of the CNBC pundits when talking about SP 500 valuation, but the SP 500’s forward P.E ratio today, is roughly the same as when we started 2017:

  • 11/3/17: 18.2(x)
  • 10/6/17: 18.0(x)
  • 7/7/17: 17.4(x)
  • 4/7/17: 17.4(x)
  • 1/6/17: 17.15(x)

Little surprises me about this data the last few years, but this surprised me: despite the SP 500 closing in on a 20% gain for 2017, the forward P.E ratio has expanded very little, almost nothing.

What’s the conclusion we should draw from this ?

We shouldn’t draw too much from any single data point but rapid “P.E expansion” is usually a market froth indicator and we’re certainly not seeing that now.

More to come Saturday and Sunday.

Thanks for reading.



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