SP 500 Weekly Earnings Update: Upward Revisions to Forward Estimates Portend Positively for Market

Per the IBES by Refinitiv data, here’s the key metrics for the SP 500 as of 1/22/21:

  • The forward 4-quarter estimate increased to $169.79 last week, versus the $168.62 from the week prior. The forward estimate is the calendar 2021 estimate and just for comparison purposes for readers, the 2021 estimate was only revised down to the $163 level during June and July of ’20 before starting to slowly get revised higher to the current $169.79. If – once the pandemic worry started in February – March ’20 – investors had only watched the calendar 2021 estimate from the IBES by Refinitiv data, it was a much different story than the volatility around the 2020 SP 500 EPS estimate. Of course, we only know that in hindsight, and of course hindsight is 20/20.
  • The PE on the forward estimate is 22.6x vs last week’s 22.3x;
  • The SP 500 earnings yield using the forward estimate was 4.42% this past week, continuing to walk up from the low of 4.29% in late Dec ’20.

SP 500 Forward EPS CurveĀ 

Looking at the SP 500 forward EPS curve, the “rates-of-change” for the forward estimates improved this past week, particularly the “4-week rate-of-change”.

Another statistic that sticks out is that the bottom rows, the multiples across the various time buckets for the SP 500, show only modest PE expansion, from the far right to the far left. 2021’s SP 500 estimate was 20x as of Sept ’20, increasing to just 22x this past week, even with higher EPS revisions.

The hallmark of secular bull markets is “PE expansion” and so far anyway, the SP 500 is seeing modest PE expansion.

Forward quarters expected growth rates for SP 500

This week, the 3rd quarter of 2021 was added even as we are still in the early stages of Q4 ’20 earnings releases.

However, the key takeaway for readers is that for 2021, at least through q3 ’21, “expected” SP 500 EPS and revenue growth rates continue to get revised higher.

For today, both the forward earnings curve and the review of the SP 500 revenue and EPS data by quarter, the upward revisions portend positively for the SP 500.

Summary / conclusion: The SP 500 EPS and revenue revisions are a continued plus for the expected forward return of the SP 500. The 4-week rate-of-change has been negative for most of 2021, but turned firmly positive as the first attachment shows.

While market sentiment is almost euphoric and wildly bullish (a big negative), this graph from this weekend’s Bespoke Report shows that SP 500 and now all indices breadth is supportive and a positive for the market action.

It’s easy to be bearish and hard to be bullish today, but perhaps that’s why the market continues to rally higher.

Take all of this with healthy skepticism, and invest according to your own risk appetites and financial profile. Capital markets can change very quickly.

Thanks for reading.

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