SP 500 Weekly Earnings Update: 8th Straight Weekly Increase in “Fwd 4-Qtr Growth Rate”

Ryan Detrick of LPL Financial (@ryandetrick post here), UKarlewitz of Fat Pitch fame (@ukarlewitz here), and Charlie Bilello over at Pension Partners (see here) (mentioned in no particular order) all noted on Twitter this past week, that with the first 1% daily decline in the SP 500, the first in 109 days, that 3 and 6-month “forward” returns” after a 1% drop for the key benchmark still look pretty healthy, after similar, and stable, low volatility progressions.

Looking through the charts this weekend and some technical analysis, the SP 500 looks to be at a critical juncture.

However, the earnings data continues to look sanguine, and in fact bullish, although it’s a poor, short-term timing tool.

Thomson Reuters data (by the numbers): Source, 3/24/17 “This Week in Earnings”:

  • Forward 4-quarter estimate: $130.91
  • P.E ratio: 17.9(x)
  • PEG ratio: 2(x)
  • SP 500 earnings yield: 5.58%, vs last week’s 5.51%, the first increase in the earnings yield since mid-January ’17
  • Year-over-year growth rate of forward estimate: +8.96% vs last week’s +8.85% and the 8th straight week of consecutive increases in the forward growth rate.

The steady increase in the y/y growth rate of the forward estimate is consistent with the forward estimates for each of the individual quarters for Q1 ’17 – Q4 ’17. There is less negative revisions occurring in the expected forward growth rates for each quarter for 2017, which was written about several times in 2016, including this post here, but I dont think readers understand the implications of what it means for the SP 500.

The natural trend of growth rates as we move towards each quarter and year, is that “expected growth” typically gets revised lower until shortly before the actual quarter gets reported and then the actual quarterly growth rates typically exceed the estimates growth rates, once we see actual earnings

By noting the less onerous revisions, already for 2017, this should portend favorably for SP 500 earnings for 2017.

And this is before tax reform, cash repatriation, and comprehensive reform is even in the numbers.

On its own, without tax reform help, the SP 500 should grow earnings this year 10% – 12%. Energy is a big reason for this year’s increase, and one reason client’s remain overweight the sector, although I’ve been early and wrong so far on the Energy overweight.

Jeff Miller, the great “Dash of Insight” and “Weighing the Week Ahead” blogger (and a long-time friend of this blog), noted in his blog this weekend Factset’s Energy article and my posture on 2016 and 2017 SP 500 earnings.

Analysis / conclusion: Readers should know by now at any given the time and for any reason the SP 500 is subject to a 5% – 7% correction “just because”. With Q1 ’17 ending this coming Friday, March 31, 2017, the SP 500 is on track for a 5% quarter and – right now anyway – this blog’s guesstimate for a 20% year for the SP 500 made last December ’16, looks pretty good.

However, I’ll be the first to tell readers take all predictions and opinions with a grain of salt. Much happens in the markets and within the world every day that can’t be predicted.

Watching SP 500 earnings data, brings readers back to a longer-term fundamental reality, that helps deal with some of the daily noise.

Client’s are still overweight Technology, Financials, and Energy. None of the companies followed or modeled fundamentally, report this week.

Keep your eye on the 10-year Treasury yield: since mid-March ’17 or the last FOMC meeting the 10-year Treasury rallied from 2.60% yield to 2.40%.

The 10-year yield has tested the 2.30% level in both January and February ’17, with the yield staying above both times. If there is a problem with the Trump agenda, or the Congressional pro-business package or credit worries, a 10-year Treasury trade through 2.29% – 2.30%, will confirm SP 500 weakness.

Thanks for reading.




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