Here is the chronology of the SP 500 “Earnings Yield” since the week of February 9th, 2018, when the stock market suffered the volatility crash:
- 4/6/18: 6.22%
- 3/30/18: 5.99%
- 3/23/18: 6.11%
- 3/16/18: 5.75%
- 3/9/18: 5.69%
- 3/2/18: 5.88%
- 2/23/18: 5.75%
- 2/16/18: 5.75%
- 2/9/18: 6.00%
Source: internal spreadsheet tracking SP 500 earnings data.
The SP 500’s “earnings yield” is higher as of Friday, April 6th, than February 9th, even though the SP 500 (denominator) is higher since the forward 4-quarter estimate has risen all quarter.
The last time the SP 500 earnings yield was above 6% was October, November ’16 just prior to the Presidential election:
- 11/11/16: 5.93%
- 11/4/16: 6.05%
- 10/28/16: 6.07%
- 10/21/16: 6.03%
- 10/14/16: 6.06%
- 10/7/16: 6.01%
- 9/30/16: 5.77%
Conclusion: In last night’s blog post, it was questioned whether Q1 ’18 earnings, which start this week with the big banks and other Financials this coming Thursday and Friday, can be a market catalyst and the thought was the Q1 ’18 earnings gains are likely in the market already, but given the SP 500 earning yield over 6% this last 9 weeks, the SP 500 can rally simply because it remains relatively cheaper than it has been since late 2016.
There is a constant litany of “the stock market (i.e. SP 500) is expensive” heard every week since the March ’09 lows, thus it becomes somewhat challenging to remain a longer-term optimist on stock prices.
The high for the SP 500 on January 26th, 2018 was 2,872.87. The close for the SP 500 on Friday, April 6th was 2,656.88 for a loss of 7.5%.
This is still a pretty normal correction and something not seen since Q1 ’16, when the SP 500 corrected roughly 15% from the July ’15 high to the February ’16 low.
Looking at the “average” SP 500 earnings yield in the first two months of 2016, when crude oil was falling to $28 and credit spreads had blown out, the “average 8-week yield” was 6.54%, not much more than today.
Remember, the President’s tariff battle with China is subject to a 6-month “public consultation” period – nothing is policy yet. This is “posturing/negotiating by headline” right now.
Thanks for reading.