SP 500 Weekly Earnings Update: Forward Growth Rate Still moving Higher

Basically, 495 of the SP 500 have reported Q4 ’16 earnings by now, so we look forward as they say, and the “Forward 4-quarter Growth Rate” continues to push higher.

Thomson Reuters I/B/E/S data by the numbers:

  • Forward 4-quarter estimate: $131.07
  • P.E ratio: 18(x)
  • PEG ratio: 2.1(x)
  • SP 500 earnings yield: 5.52% up from last week’s 5.51%
  • Year-over-year growth of the forward estimate: +8.62% vs last week’s +8.49%

Almost every day we keep hearing about the SP 500’s ” extended valuation” at 18(x) earnings, which, with the exception of 2007 – 2008, is typically not a historical P.E valuation where the SP 500 has encountered problems, meaning a meaningful market top and meaningful correction have followed.

Here is the trend in the “y/y growth rate of the forward estimate”:

  • 3/10/17: +8.62%
  • 3/3/17: +8.49%
  • 2/24/17: +8.41%
  • 2/17/17: +7.93%
  • 2/10/17: +7.88%
  • 1/7/17: +4.81%
  • 12/9/16: +4.19%
  • 11/4/16: +3.59%

Seriously, if the “forward” earnings estimates are getting pulled higher like this, week after week, it should portend positive things for the SP 500.

The Energy drag is over – will have a separate post on the Energy sector and the SP 500 Ex-Energy tomorrow.

The “bottom-up” SP 500 estimate for calendar 2017 is looking for 10% growth – when the forward 4-quarter estimate and the bottom-up estimate meet, that is where i think both will stabilize, but 2017 fiscal policy and tax reform could add as much as little as $3 or as much as $7 to the final estimates.

With credible tax reform, the Street could see $133 – $134 by the end of ’17, which leaves the SP 500 trading at 17.5(x) forward earnings for better than 10% growth.

In addition, we haven’t discussed the old “P.E expansion / contraction” debate. Tax reform if done credibly and sensibly, I would think is a “P.E expanding” event.

Corrections can occur at any time – as long as the 10-year Treasury yield doesn’t rise too quickly, everything happening in 2017 looks positive.

One caveat: in 2011, the SP 500 corrected 20% peak-to-trough and earnings growth was better than 15% that year. (We saw an incredible rally in Q4 ’11, pulling the SP 500’s return positive on the year.) In 2011, the Energy sector carried the ball, Tech and Financial’s were still punk, and Energy was about 15% of the SP 500’s market cap.

From an earnings perspective, I do think the SP 500 remains in very good shape.

More tomorrow – thanks for reading…





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