Keep an Eye on Q1 ’19 SP 500 Earnings Revisions

FC-eps estimate revisions

The above spreadsheet is a far bigger data field than needs to be posted, but if you wish to take a look at SP 500 EPS estimate revisions since the 2009 market low, here is the spreadsheet that does it.

Since tax reform was signed, “positive revisions” to SP 500 EPS estimates have hit 70% and 69% the last two quarters (not surprising given the cut in the corporate income tax rate) after previous peaks were in the mid 50% range.

Again, a lot of this is tax-reform driven, but this is a gift to the shareholder, which I will gladly accept.

As was posted last week, the key aspect to the revisions is the degree that upward revisions are being driven by tax reform (quite a large percentage is my guess) and how much is being driven by stronger economic growth.

That will become apparent as we start to move into Q4 ’18 and Q1 ’19.

Keep an eye on the first quarter, 2019 sector revisions and overall SP 500 EPS growth. That will give us a better read on the true growth of the US economy “ex tax reform” changes.

As was noted a few weeks ago on this blog, just two sectors – Energy and Real Estate – are seeing upward revisions to their sector EPS estimates for Q1 ’19 since April 1 ’18.

Technology has seen a sharp downward revision from +9.7% expected for Tech in Q1 ’19 versus +3.3% today, and expect that to change again once Tech earnings start in July ’18.

Thomson Reuters IBES data for SP 500 “by the numbers”:

  • Fwd 4-qtr est: $163.93 vs $163.97 last week
  • PE ratio: 16.9x
  • PEG ratio: 0.78x
  • SP 500 earnings yield: 5.95% vs 5.90% last week
  • Year-over-year growth of fwd est: +21.68%

Source: Thomson Reuters IBES “This Week in Earnings” dated 6/22/2018

Conclusion: Unless you’ve lived in a cave on a deserted island, readers already are aware that SP 500 earnings are strong and likely to remain that way for the rest of 2018 given that the benchmark and the companies therein lap a 2017 with a higher corporate tax rate.

The muted returns for the SP 500 this year aren’t all that big of a surprise – check our SP 500 and bond market forecasts for 2018, posted to this website in late 2017.

I am a little surprised in the punk action within the Financial and Industrial sector’s which will be addressed in a later blog post.

Continue to keep an eye on 2019 estimates since those numbers will show readers / investors whether the TCJA (2017 tax reform) is driving incremental growth beyond just the changes in the corporate tax rate.

Thanks for reading.




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