There was no change this week to the positive SP 500 EPS trends over the last 5 – 6 months, particularly from July ’20 onward when 2nd quarter, 2020 started to see big EPS and revenue beats with 2nd quarter corporate earnings.
Here is a quick look at the “forward 4-quarter EPS” number which Refinitiv provides in “This Week in Earnings” but you can also calculate it yourself from the quarterly bottom-up estimates from the various Refinitiv reports.
Note that since July 31 (far right of spreadsheet) there have been only two weeks in the last 20, where there was a sequential decline in the SP 500 EPS value. That continues to be highly unusual. In “normal” markets there is a general erosion in the forward 4-quarter estimate from the start of the new quarter until the new quarter.
Here’s a quick summary of the new metrics:
- The forward 4-quarter EPS value this week was $160.40 versus the $160.08 last week.
- The PE ratio is 23x, still lofty for an expected 4% average growth rate in SP 500 earnings for both calendar 2020 and 2021.
- The SP 500 earnings yield is 4.34%, a 6-week low from the high on 10/31 of 4.84%.
- The Q3 ’20 “bottom-up” SP 500 quarterly estimate was $32.91 on September 30th, and $39.42 as of Friday, December 4th, 2020.
- The calendar 2020 SP 50 estimate was $125 on June 30 ’20, but is now roughly $138.00 today.
What’s interesting about the 2020 calendar year SP 500 EPS estimate, is that almost precisely when the “extra” stimulus benefit ended in late July’20, the 2020 SP 500 EPS estimate began to increase rapidly.
With the mainstream media and others screaming for additional fiscal stimulus, the SP 500 numbers are telling a different story.
SP 500 Forward Earnings Curve:
Note the 2021 SP 500 estimate on the top line of the spreadsheet. It’s been almost constant since mid-August ’20 at $165 – $166 per share.
The sell-side analysts are really cowed: they missed badly on Q2 and Q3 ’20 EPS and revenue estimates, and yet they refuse to lift Q4 ’20 estimates at all.
It’s only Q4 ’20 now that could really have a material impact on the current $138 estimate for Q4 ’20.
Summary / conclusion: While sentiment is achieving record bullish levels, like so many indicators it isn’t a precise timing tool. The trends in SP 500 earnings are saying “higher EPS is more probable than not”.
The sentiment and overbought nature of the SP 500 itself is a little anxiety-inducing. A pullback of 3% – 5% would be perfect.
Tomorrow, look for another blog post, away from the SP 500 earnings topic (maybe).
Thanks for reading.