SP 500 Forward EPS Estimates Still Increasing

SP 500 earnings data (courtesy of IBES data by Refinitiv) continues to show positive sequential increases in weekly SP 500 earnings estimates for various time frames, which is usually a good thing.

The correction being seen in the US equity market – at least so far anyway – isn’t supported by a degradation in either the forward 4-quarter SP 500 EPS estimate or the various timeframes covered by the SP 500’s “forward earnings curve”.

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This piece of the SP 500 earnings spreadsheet that tracks the “forward 4-quarter estimate for the SP 500 shows that both the sequential and y/y rate of change continue to improve.

As readers have been told in previous weeks, only one week since July 2nd, 2020 has the forward 4-quarter estimate failed to increase sequentially and that was the week of August 14, 2020.

SP 500 forward earnings curve: 

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Readers can see both the seqeuntial and 4-week rate of change for the various quarterly earnings estimates.

Last week, there was some worry over the 4-week rate of change, but that looks ok this week. At least it hasn’t gotten worse as 3 of the 5 buckets saw their 4-week rate of change improve.

Here is a quick rundown of the data:

  • Forward 4-qtr estimate this week is $146.42 versus $142.15 last week;
  • The forward PE is 22.8x versus last week’s 22.8x;
  • The SP 500 earnings yield is 4.38% same as last week, and continues to indicate the SP 500 could use a bigger drawdown;
  •  The estimated 2020 and 2021 SP 500 EPS growth rate “average” for the two years combined is still 4%, a constant now for 23 weeks;

SP 500 revenue and EPS growth rates for next 4 quarters: 

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Thanks to David Aurelio and Tajinder Dhillon, both of Refinitiv and both kind enough to provide me with the “expected” SP 500 EPS and revenue growth for Q1 ’21 and Q2 ’21, this blog can begin updating the data weekly from other Refnitiv research.

As readers can see, the trend for both the last two quarters of 2020 and early 2021 is positive, (note the positive revisions for Q1 ’21 revenue growth), while the Q2 ’21 quarter is mixed since we will be “lapping” the Covid-19 crisis in full. The “expected” SP 500 EPS growth in q2 ’21 is jumping around a bit, and i would caution readers to take all the 2021 data with a grain of salt given the Presidential election.

At first blush the data might argue for 4 more years of President Trump, but there is other data (sector data not shown) that might make an argument for President Biden.

The following block cut-and-pasted from the SP 500 earnings spreadsheet shows how the “forward 4-quarter estimate” changed with President Trump’s surprise victory in November, 2016.

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Everything looks normal (with one exception), which means the SP 500 estimates either anticipated or discounted the Trump victory up to the election, or if analysts were surprised at the Trump victory, then waited to see actual policy (tax, regulation, etc.) before making changes to their forward estimates.

The one exception is that the rate of degradation in the forward estimate usually seen every quarter, didn’t happen in either January or April, 2017.

That tells me – probably due to the Republican sweep – that sell-side analysts were reluctant to reduce their estimates as we moved through the first 6 months of 2017. (Normally between the start and end of a quarter there can be a $4 – $5 drop in the forward estimate as the natural pessimism and bearishness of Wall Street sets in and analysts would rather miss to the upside rather than the downside in terms of their estimates and the “surprise” factor.)

Summary / conclusion: Despite the sharp drop in the large-cap Tech stocks, the Tech sector estimates haven’t changed that much. This blog needs to update some specific sector data in the next few days so keep checking back for new posts.

The pattern that’s been in evidence since early July ’20 for the SP 500 forward estimates hasn’t changed and it continues to indicate that analyst’s are raising their numbers each week.

This blog will take a look Technology, Health Care and Financial sectors this weekend.

Take everything you read here with great skepticism and a healthy dose of salt. Markets change greatly around the earnings numbers and for different reasons.

Thanks for reading.



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