5.24.14: SP 500 Earnings Update: Forward Estimate Growth Rate Improves for 6th Straight Week

In honor of Memorial Day, thank a vet this weekend. It is the ultimate sacrifice, and as the old saying goes, “Freedom isn’t Free”.


According to Thomson Reuter’s “This Week in Earnings” (TWIE), the forward 4-quarter estimate for SP 500 earnings remained flat this week at $123.08.

The p.e ratio on the SP 500 finished the week at 15.5(x). The PEG ratio remains under its recent range at 1.82(x), far below the 2013 average of 2.10(x) to 2.60(x).

The “earnings yield” on the SP 500 remains elevated at 6.48%.

The “forward 4-quarter growth rate of the forward estimate rose to 8.51%, the 6th consecutive week of increase. (That metric is a positive improvement for earnings data. We haven’t seen steady increases in the y/y growth rate of the forward estimate in 6 months, or since late 2013.)

Analysis / commentary: Stock market bearishness seemed to hit a near-term peak with the Treasury 10-year yield dropping to 2.47% (which yield has since rebounded to 2.52%) but the bearishness is completely unsupported by SP 500 earnings data. The SP 500 earnings data has actually improved markedly the last 4 weeks, and the 2014 “bottoms-up” estimate, which had eroded steadily since mid-October, 2013, has also now improved the last 4 weeks, and been raised from $118.57 to $119.64. Remember, this is bottoms-up and not top-down.

In terms of sector data, Thomson’s weekly TWIE¬†detailed that Consumer Discretionary estimates for q1 ’14 came in stronger-than-expected, so the “retail bounce” that we were expecting for the 2nd quarter is being marred by 2nd quarter guidance for retail. Per the numbers, q2 ’14 earnings growth for Consumer Discretionary is expected at +6.9%, down from +10.8% as of April 1, ’14 and +13% as of January 1 ’14.

I think retail is bottoming in here. Be selective, but there are good values in the sector, which we will cover under a separate headline.

Q2 ’14 earnings growth is now expected at +7.1%, down from 8.5% on April 1. As we commented last week quoting Factset’s John Butter, the rate of erosion in expected q2 ’14 earnings growth is very positive. Right now I think we could expect to see 7% – 7.5% earnings growth for q2 ’14, even though there is another 5 weeks left in the quarter.

With the increase in the SP 500 forward growth rate earnings estimate, the expectation that 2014 will see full-year earnings growth of 10% is improving rapidly.

As my friend Jeff Miller over at “A Dash of Insight” often opines, many market pundits pick and choose earnings data to meet their forecast, rather than build a forecast around the data. When you hear the market pundits on CNBC talk about revisions and “earnings and revenue beat rates” or guidance revisions, this is always “relative” data. You must look at the absolute trends in SP 500 earnings data too, and that trend is nothing but “Northeast” on a graph or chart.

Regardless of market sentiment, SP 500 earnings data continues to be an ambiguous, fundamental, market positive.

Thanks for reading and stopping by. We need to get a Linkfest out this weekend.

Please have a safe and restful Memorial Day weekend.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager





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