Taking a Slightly Longer View of SP 500 Earnings

For 2019, the expected growth rate this calendar year for SP 500 earnings is just 2%. That’s pretty low.

For 2020, as of this week, the “expected” SP 500 earnings growth rate has fallen to 11%, down from 12%, an expected growth rate that had held for 24 straight weeks. It was four weeks ago that the expected growth rate dropped from 12% to 11%.

Here is the SP 500 data by the numbers: (Source: IBES by Refinitiv)

  • Fwd 4-qtr est: $172.26 vs $172.98 last week
  • PE ratio: 17x
  • PEG (fwd): 9.5x
  • PEG (TTM): 3.5x
  • SP 500 earnings yield: 5.90% this week, versus 5.90% last week
  • Y/Y growth of fwd est: +1.78% vs last week’s +2.21%
  • Y/Y growth of TTM est: +4.88% vs last week’s 5.37%

Summary / conclusion: In 2018, excluding the TCJA impact on SP 500 earnings, organic SP 500 earnings growth per Factset (and John Butter does a great job) was 14% per their Earnings Insight missive published weekly. This year the expected 2019 RPS growth rate is 2%, which just like retailers that negan to measure 2-year comp’s the average SP 500 earnings growth will be around 7% – 8% for calendar 2018 and 2019.

Do we get 11% – 12% next year for the SP 500 ?

If full tariff’s get instituted, my guess is no. That 2019 calendar growth estimate for the SP 500 will likely come down.

Note the “forward 4-quarter” expected growth estimate for the SP 500 which would include 3 ’19 through Q2 ’20 is just 1.78% today. That’s low – as low as the forward estimate was in early 2016. ( A year ago the “forward 4-quarter estimate” on August 10, 2018 was $169. There has been little “expectation” growth in analyst numbers the last 52 weeks.)

Perhaps the next project is to compare what the “forward 4-quarter estimate” expected for a particular period and then compare it to the actual 4-quarter trailing earnings results.

Personally, I still put a lot of weight on the SP 500 earnings yield and it continues to hover around 5%, which would assume a 20x forward multiple.

(On a side note, a few metrics have been added for readers. I just don’t know that the PEG (PE-to-growth) ratio tells us much. It was below 1x in 2018 thanks to the bump from tax cuts and the SP 500 fell 4% on the year. The next metric that could be added will be an SP 500 earnings yield that is both forward and trailing. Still, i dont know that any investor puts any weight on trailing estimates or any “trailing metric” for that matter. As 2018 showed, you better be looking out at least 12 months ahead and that’s always a cloudier view.)


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