SP 500 “Earnings Yield” is Actually Increasing Since Mid-December ’17

SP 500 Earnings Data by the numbers: (Source TR I/B/E/S “This Week in Earnings” dated 1/19/2018)

  • Fwd 4-qtr est: $151.95
  • P.E ratio:18.5x
  • PEG ratio: 1.29x
  • SP 500 earnings yield: 5.41% vs last week’s 5.40%
  • Year-over-year growth of forward estimate: +14.31% vs last week’s +13.2%

As the headline suggests, what’s unusual about a market that has delivered such a strong rally, is that the “SP 500 earnings yield” has actually risen despite the SP 500’s rally an indicator of how strong forward earnings estimates have been around tax reform, a strong economy, etc.

The SP 500 earnings yield is calculated by dividing the “forward 4-quarter estimate” by the SP 500 closing value for the week, so $151.95 divided by 2,810.30 = 5.41%.

But one would think the powerful rally (i.e. rapidly rising denominator) the earnings yield would start to shrink. Instead because the numerator has risen so rapidly (forward SP earnings estimates have risen faster than the SP 500) the SP 500 earnings yield has actually shown the market getting relatively more attractive using this metric, despite the rally.

Here is the SP 500 earnings yields trend since mid-December ’17:

  • 1/19/2018: 5.41%
  • 1/12/2018: 5.40%
  • 1/05/2018: 5.39%
  • 12/29/2017: 5.34%
  • 12/22/2017: 5.33%
  • 12/15/2017: 5.32%

Expected 2018 earnings growth is way strong.

More to come this weekend.

Thanks for reading…

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