SP 500 Earnings Update: Forward Estimate Growth now over 20%


The above link may be the best summary of this week’s earnings “action” but Factset notes pointedly that “A record number of SP 500 companies are issuing positive EPS guidance for 2018”.

Here is the Thomson Reuters data (by the numbers) as of Friday, 2/16/18.

  • Fwd 4-qtr est: $157.78
  • P.E ratio: 17.4
  • PEG ratio: 0.87x
  • SP 500 earnings yield: +5.75% vs last week’s 6.00%
  • Year-over-year Growth of fwd est: now over 20% up from 11%, on December 22nd, the day the tax bill was signed.

(Source: Thomson Reuters I/B/E/S – all TR does is give the forward estimate, the rest is calculated on a spreadsheet.)

That is a big number, now over 20%, which means that the forward estimate today of $157.78, is 20% higher than the forward estimate of $131.39 on 2/17/17 or 52 weeks ago.

Look at the PEG or “P-E to growth” ratio too – it has been under 1,0 now for the last two weeks, and was 1.0 three weeks ago.

There is no question that earnings fundamentals are healthy. Jeff Miller and I talked about how a $150 earnings print in 2018 would be strong, but we’ve now blown through that expected 2018 EPS estimate and I now believe that $160 might be possible this year.

The problem is the bond market: if the 10-year yield continues to rise, the SP 500 will be like trying to push a beach ball under the water – the higher yields will keep a lid on equity returns until there is some sense the rate of acceleration is over.

The 10-year Treasury yield has risen from 2.40% as of 12/31/17 to 2.88% as of tonight’s close.

That is almost a 50 basis point move on a 2.40% yield or roughly a 20% adjustment.

My own opinion is that the Treasury “issues” are just starting too. It is going to be a tough year for bond markets.

More to come on this over the long weekend.

Thanks for reading.




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