Despite the market volatility this week, with the SP 500 falling 2.4% on Monday, May 13th after President Trump’s China tariff tweet, the 2019 and 2020 “bottom-up” EPS estimate “rate of change” again improved, for the 2nd consecutive week.
Here is what the data looks like:
As readers can see, and noting the data from last week’s blog post, we are now seeing an improvement in the bottom-up SP 500 EPS estimates for the first time since last September ’18.
Despite all the angst around trade and tariff talks, there is a big positive developing below the surface.
SP 500 data (by the numbers, from IBES by Refinitiv):
Fwd 4-qtr est: $171.76 vs last week’s $171.87
PEG ratio: 16.6x
PE ratio: 3.4x
SP 500 earnings yld: 6.01% vs last week’s 5.96%
Year-over-year growth of fwd est: +4.8% vs last week’s +5%
Summary / conclusion: The improvement in the calendar ’19 and ’20 bottom-up EPS estimate for the SP 500 is a definite plus, as is the SP 500’s earnings yield back above 6%, but the falling “year-over-year” growth rate is still a little worrisome.
Because I want to be intellectually honest with readers and admit mistakes quickly, in mid-February ’19, with this blog post the Q4 ’18 SP 500 earnings data was reviewed and the one aspect to the data I didn’t notice last September ’18 was the “4-week rate of change” turning negative in the bottom-up estimates.
Now as you can see from the above spreadsheet posted today, that trend is now positive so the question remains, will the tell on the upside be as reliable an indicator as it was on the downside last fall ’18 ?
The trade and tariff talks complicate the issue and have left the market vulnerable to Presidential tweets and headlines, but eventually the “fundamentals” should win out.
The SP 500 earnings yield back above 6% is a plus too, although it’s not a market-timing tool.
Thanks for reading. Much more to come this weekend.