SP 500 Earnings Update: Forward 4-Quarter Estimate Continues to Climb

“its got no brain, its got no blood, its got no anima…it just keeps banging on those meaningless symbols endlessly and going and going and going…” 

(Dr. Oatman (Alan Arkin) to Martin Blank (John Cusack) in the 1990’s Classic, “Grosse Pointe Blank” talking about the Energizer  Bunny,)

Watching this late 1990’s, classic comedy recently, I remember thinking when this line was heard again, “Dr. Oatman knows how it feels to write a financial blog”.

The SP 500 forward 4-quarter estimate continues to climb.

Here is the Thomson Reuters data by the numbers:

  • Forward 4-qtr estimate: $142.39
  • P.E ratio: 18x
  • PEG ratio: 1.67x
  • SP 500 earnings yield: 5.51%
  • Year-over-year growth of the forward estimate: Jumped to 10.87% this week, versus last week’s 10.58% and the 6th consecutive weekly increase.

The “y/y growth rate of the forward estimate” has now risen for 6 straight weeks, at a time when the typical trend in the forward estimate is downward thanks to negative revisions, so the data is trending in an anomalous fashion, and is usually indicative of higher stock prices going forward.

Like the above quote, it gets tiresome to write this for readers, since this blog is pretty much continuously saying the same thing.

But the data is what it is, and this is a secular bull market.

Note too the trend in the “SP 500 earnings yield” – that metric also rose this past week, to 5.51% from 5.49%, which is a function of the higher forward estimate.

Readers have an SP 500 today trading at a forward earnings estimate of 18x, which earnings are expected to grow over 10% in the next 4 quarters, and the forward estimate keeps climbing at an increasing rate.

Not a bad thing to have…

Here is how the SP500 forward estimate (y.y growth) has tracked the last 6 weeks:

  • 11/10/17: +10.87%
  • 11/3/17: +10.56%
  • 10/27/17: +10.18%
  • 10/20/17: +10.13%
  • 10/13/17: +9.81%
  • 10/6/17: +9.52%

Note the accelerating trend in y/y growth of the forward estimate.

Q3 ’17 are thought to end this week, with WalMart’s earnings release and the numbers are good, per last night’s blog post. The Financial sector is offsetting the strong y/y growth in Energy. but overall 8.1% y/y growth is solid.

A few cracks did appear in the market this week.  The high yield credit sector took a little beating, which could be a function of something I read on Bespoke about interest expense deductibility for highly leveraged companies: ” One note on tax reform: the current proposal includes a provision to reduce deductibility of interest over 35% of EBITDA. We’ve seen the argument that this is driving high yield selling because it will hurt coverage ratios (tax payments reducing FCF available for interest).” ( A quote directly from a Bespoke research piece.)

SP 500 earnings estimates are NOT a market timing tool. Corrections and pullbacks can happen for a variety of reasons. The sharp jump in the 10-year Treasury yield this week, was somewhat unusual given the weaker stock market action.

The trend in earnings estimates today, leads me to believe that the SP 500 could have a healthy run into year-end 2017.

2017, seems to be a smaller version of 1995 and 2013, two years where the SP 500 rose 36% and 32% respectively.

Remember though, this is one opinion, based on earnings and historical patterns.

More to come Sunday, November 12th, 2017.

Thanks for reading.

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