We are roughly 1/3rd of the way through 2018, and despite a rapid increase in the SP 500 forward estimate for 2018, the benchmark is unchanged on the year as the bond markets and interest rates have started to captivate investors.

Here is the SP 500 earnings data by the numbers:

$162.14**Fwd 4-qtr est:**16.5x**P.E ratio:**0.82x**PEG ratio:**6.07%**SP 500 earnings yield:**+20% vs last week’s +19.86%**Year-over-year growth of few est:**

(Source: Thomson Reuters I/B/E/S “This Week in Earnings” provides forward estimate, all else is internal)

Here is the progression of the forward estimate the last 4 weeks:

$162.14**4/20/18:**$162.02**4/13/18:**$161.92**4/6/18:**$158.14**3/30/18:**

It is highly unusual to see continued “sequential” increases in the forward estimate like this. You’d have to be a long-time reader of this blog and understand the patterns, but normally, after the quarterly roll in the estimate, which occurs the last week of March, June, September and December, the first week of the following quarter has typically been the high estimate and then the natural analyst pessimism and cautious guidance following 2008 has brought down the estimate gradually through the quarter.

This is the 2nd consecutive quarter – starting with January ’18 – where the forward estimate has sequentially increased each week. Obviously so much of this is tax-reform related, but the pattern is there nonetheless.

That continues to be indicative of strong underlying earnings fundamentals within the SP 500.

However it may not matter: the SP 500 action this year, virtually unchanged on the year in terms of its return may be starting to reflect the higher short-term interest rates and what is likely to be a move higher in the 10-year Treasury yield above the 2013 high tick of 3.03.

Interest rates still matter.

The SP 500 earnings yield remains above 6%, which should be pretty good value for the benchmark for long-term investors. Absolutely no reader has commented that the SP 500 valued at 16x, with 20% growth expected over the next 4 quarters is reasonably valued.

Look at the PEG ratio.

My own opinion is that there remains less downside risk in the SP 500 than in the Treasury or credit markets, but a rapid rise in interest rates or a rapid widening of credit spreads from Treasury market volatility will likely show up in short-term movements in stock prices.

Here are two Treasury market articles from this weekend – here and here – where some discussion was had about the recent Treasury market action.

Thanks for reading.