What’s Driving this Stock Market – P.E Expansion or Earnings Growth ?

Here is the data:

Estimated 2018 SP 500 EPS growth, with accompanying P.E

  • 1/26/2018: +16%, 18.7x
  • 1/19/2018: +15%, 18.5x
  • 1/12/2018: +14%, 18.5x
  • 1/5/2018: +12%, 18.5x
  • 12/29/2017: +12%, 18.7x

In Friday’s post (here) we showed the same numbers, but with tonight’s data I wanted readers to clearly see two metrics:

1.) 2018 estimated EPS growth for the SP 500 has accelerated from 12% to 16% in just 4 weeks, pretty extraordinary given that the usual revision pattern is downward pressure on the forward estimate;

2.) The P.E ratio on the SP 500 as of Friday, January 26th, 2018, is exactly the same as on 12/29/17.

There has been no “P.E expansion” at all with this rally.

At some point we’ll see a correction. There has been a new stock market record set recently with the longest streak without a 5% correction in history, per many technicians who track this kind of data, like Ryan Detrich of LPL Financial.

The SP 500 continues to simply “walk up” estimated earnings growth for 2018.

Thanks for reading.

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