{"id":6377,"date":"2016-10-15T14:45:45","date_gmt":"2016-10-15T14:45:45","guid":{"rendered":"https:\/\/fundamentalis.com\/?p=6377"},"modified":"2016-10-15T14:45:45","modified_gmt":"2016-10-15T14:45:45","slug":"big-jump-in-sp-500-forward-4-quarter-eps-growth-rate-sp-500-earnings-yield-over-6","status":"publish","type":"post","link":"https:\/\/fundamentalis.com\/?p=6377","title":{"rendered":"Big Jump in SP 500 &#8220;Forward 4-Quarter EPS Growth Rate&#8221; \/ SP 500 Earnings Yield over 6%"},"content":{"rendered":"<p>It was one year ago almost exactly the SP 500 was in the midst of a powerful rally, after the China yuan devaluation, that started late July, 2015.<\/p>\n<p>The rally started on &#8220;nonfarm payroll Friday&#8221; in early October &#8217;15, with the SP 500 opening lower on a weak September &#8217;15 jobs number, and then reversing higher, and the subsequent rally then carried through to mid-to-late November &#8217;15, and lasted 6 &#8211; 7 weeks.<\/p>\n<p>Then, the final commodity flush started:<\/p>\n<ul>\n<li>After topping out the first week of November &#8217;15, the Energy ETF&#8217;s and crude oil started their final collapse into the January 21 &#8211; February 15, &#8217;16 flush. 9The XLE peaked near $72 in the first week of November &#8217;15 and 6 &#8211; 8 weeks later was trading near $50, eventually bottoming there. See chart below.)<\/li>\n<li>High yield spreads started to widen substantially, through February &#8217;16.<\/li>\n<li>Commodity prices and Emerging markets also started their final crescendo into the early &#8217;16 bottom.<\/li>\n<li>\u00a0The bank stocks were crushed in late &#8217;15 &#8211; early &#8217;16. I wrote at the time about a client that was a leasing officer in a major Chicago bank, where the OCC (why ?) came through and told the bank to write down their Energy credits\/loans to zero, whether performing or not. (Presumably, if this was being done at one bank, by the regulators, it was being done at others.)<\/li>\n<li>Crude oil bottomed near $28 in Q1 &#8217;16, basically wiping out the sector&#8217;s profits entirely in Q1 &#8217;16.<\/li>\n<li>Early &#8217;16 was the start of what is now called the Great Rotation: commodities were at the bottom of the &#8220;asset class&#8221; return tables, from 2011 through 2014, as well as Emerging Markets, and now that has begun to shift.<\/li>\n<\/ul>\n<p>The point of this mini history lesson is that we are now starting to lap these comp&#8217;s as we roll into the last 10 weeks of 2016 and head into early &#8217;17.<\/p>\n<p>Here was <a href=\"https:\/\/fundamentalis.com\/?p=5470\">this blog post<\/a> in late 2015, expecting a 10% return for the SP 500 in 2016. I still think we get there by December 31 &#8217;16.<\/p>\n<p><em><strong>Thomson Reuters SP 500 earnings data (by the numbers):\u00a0<\/strong><\/em><\/p>\n<ul>\n<li><em><strong>Forward 4-quarter estimate:<\/strong><\/em> $129.22, down slightly from last week&#8217;s $129.54.<\/li>\n<li><em><strong>P.E ratio:<\/strong><\/em> 16.5(x)<\/li>\n<li><em><strong>PEG ratio:<\/strong><\/em> 5.06(x)<\/li>\n<li><em><strong>SP 500 earnings yield:<\/strong> <\/em>6.06%, some nice rallies have started when the SP 500 earnings yield has ended the prior week over 6%<\/li>\n<li><em><strong>Year-over-year growth of forward estimate:<\/strong><\/em> +3.26%, and the highest print since early January &#8217;15&#8217;s 5% growth rate.<\/li>\n<\/ul>\n<p><em><strong>Conclusion:<\/strong><\/em> to be upfront with readers, I thought this acceleration in the y\/y growth rate of the forward estimate, would have started a year ago, but the October &#8217;15 through Jan &#8217;16 flush in commodities, particularly crude oil, delayed the ramp considerably. Q3 &#8217;16 Energy earnings growth is expected to decline 70% y\/y, but Q4 &#8217;16 is expecting flat growth (see <a href=\"https:\/\/fundamentalis.com\/?p=6356\">here<\/a>). Energy earnings start this coming week with Schlumberger (SLB) and Halliburton (HAL) (no positions), which is the most stressed of the Energy sector, i.e. the services companies with &#8220;deep-water&#8221; segments. (Schlumberger, and Halliburton are in a better competitive position than Transocean and Diamond, the two latter companies being deep-water drillers, which are thought to be in secular decline.)<\/p>\n<p>Bottom-line: SP 500 &#8220;forward&#8221; earnings growth should start to improve and take out the early &#8217;15 high of +5%, over the next 6 &#8211; 9 months, or through Q2 &#8217;17 earnings.<\/p>\n<p>(One interesting tidbit: Thomson Reuters puts out the &#8220;This Week in Earnings&#8221; report on Friday night of each week, but cuts off the data as of Thursday night. Hence, this weeks &#8220;forward 4-quarter&#8221; estimate&#8221; does not include the major bank results of Friday morning, October 14 &#8217;16. Nor does the &#8220;Financial Sector&#8221; expected earnings growth for Q3 \u00a0and Q4 &#8217;16, incorporate Friday morning&#8217;s bank results. Currently Q4 &#8217;16 Financial sector growth is +15% &#8211; pretty good for the Financial sector &#8211; that could get revised higher this coming week. It&#8217;s been a long time since investors have seen a bank rally supported by earnings and revenue growth.)<\/p>\n<figure id=\"attachment_6384\" aria-describedby=\"caption-attachment-6384\" style=\"width: 300px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/fundamentalis.com\/?attachment_id=6384\" rel=\"attachment wp-att-6384\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-6384\" src=\"https:\/\/fundamentalis.com\/wp-content\/uploads\/2016\/10\/XLEdaily101516-300x169.png\" alt=\"click for larger view\" width=\"300\" height=\"169\" srcset=\"https:\/\/fundamentalis.com\/wp-content\/uploads\/2016\/10\/XLEdaily101516-300x169.png 300w, https:\/\/fundamentalis.com\/wp-content\/uploads\/2016\/10\/XLEdaily101516-768x432.png 768w, https:\/\/fundamentalis.com\/wp-content\/uploads\/2016\/10\/XLEdaily101516-1024x576.png 1024w, https:\/\/fundamentalis.com\/wp-content\/uploads\/2016\/10\/XLEdaily101516.png 1920w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a><figcaption id=\"caption-attachment-6384\" class=\"wp-caption-text\">click for larger view<\/figcaption><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>It was one year ago almost exactly the SP 500 was in the midst of a powerful rally, after the&hellip;<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[156,173,102,171,95,84,53,40,91],"tags":[],"class_list":["post-6377","post","type-post","status-publish","format-standard","hentry","category-commodities","category-emerging-market-etfs-eem","category-emerging-markets","category-energy-etfs-xle","category-energy-sector","category-financial-sector","category-financials","category-hyg","category-weekly-earnings-update"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/6377","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=6377"}],"version-history":[{"count":7,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/6377\/revisions"}],"predecessor-version":[{"id":6385,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/6377\/revisions\/6385"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=6377"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=6377"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=6377"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}