SP 500 “Earnings Yield” Back to 6% with New Quarter

The 4-quarter or “forward 4-quarter estimate” for the SP 500 after rolling into October is $175.49, which now covers the period from Q4 ’19 to Q3 ’20.

This compares to last week’s forward estimate of $170.58, which covered the period from Q3 ’18 to Q2 ’20.

The final “bottom-up” actual EPS for the SP 500 for Q2 ’19 was $41.31.

Here is the actual “upside surprise” factors for the SP 500 quarterly estimate the last 6 quarters:

Click to open / enhance / enlarge


Note how both Q4 ’18 and Q2 ’19’s “surprise” was weaker than normal.

IBES by Refinitiv estimates that over long periods of time, the “upside surprise” (which is really the upward revision in the dollar estimate from the first day of the quarter’s reports to the last day) is typically 3% – 5%.

SP 500 Earnings (by the numbers):

  • Fwd 4-qtr est: $175.49
  • PE ratio: 17x
  • PEG ratio: 15x
  • SP 500 earnings yld: +5.94% vs last week’s 5.76%
  • Y-y growth of Fwd est: 1.08% vs last week’s 1.10%
  • TTM est: $162.86 (this number now includes Q3 ’19 back through Q4 ’18)
  • TTM PE: 18x
  • TTM PEG: 2x
  • SP 500 earnings yld: 5.52%
  • Y-y growth of TTM est: 7.76% vs last week’s +3.82%

Summary / conclusion: The two metrics that jumped out in preparing today’s report was the SP 500 earnings yield at 5.94% (let’s say 6% – close enough for government work) and the y/y growth in the TTM (trailing twelve-month) estimate of 7.76%.

Forward earnings expectations or the “forward 4-quarter” estimated growth remained very subdued, so the possibility of the upside surprise looms.

As of today, the Street consensus is expecting (per IBES), 3.6% revenue growth and -2.7% SP 500 EPS growth in Q3 ’15. Assume 3rd quarter SP 500 EPS will reflect flat to +2% growth by the time we see 12/31.

It’s one opinion and take it with a dose of skepticism, (always) but this remains a secular bull market with its hallmarks being low expectations around SP 500 earnings, lousy (and i mean really lousy) sentiment and healthy market breadth.

It’s a very frustrating market: we get oversold and then overbought very quickly and we simply keep bouncing around in this range driven by headlines.

Tariff headlines still hold sway: CNBC mentioned Friday morning that both President Trump and Larry Kudlow implied that there might be good news on the tariff discussions with China this coming week. I didn’t hear either the President or Kudlow speak, but that was from the CNBC desk.

More will be available for Sunday reading,..

Thanks for reading.



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