{"id":7024,"date":"2017-07-01T22:15:29","date_gmt":"2017-07-01T22:15:29","guid":{"rendered":"https:\/\/fundamentalis.com\/?p=7024"},"modified":"2017-07-01T22:15:29","modified_gmt":"2017-07-01T22:15:29","slug":"the-quarterly-bump-interest-rates-and-sp-500-earnings","status":"publish","type":"post","link":"https:\/\/fundamentalis.com\/?p=7024","title":{"rendered":"The Quarterly Bump, Interest Rates and SP 500 Earnings"},"content":{"rendered":"

Interest Rates:\u00a0<\/strong><\/em><\/p>\n

The yield on the 10-year Treasury rose 15 bp’s this past week, a sizable move relative to the last few years.<\/p>\n

\"\"<\/a>
Click to open \/ enlarge<\/figcaption><\/figure>\n

The yellow line is the 10-year Treasury yield and it looks to be headed higher.<\/p>\n

\n

The Quarterly Bump and the Forward Earnings Curve:<\/strong><\/em><\/p>\n

Each week, this blog posts for readers the forward 4-quarter earnings estimate, which might be one of the better leading indicators available to the ordinary investor, and yet it gets very little coverage or discussion from the mainstream media.<\/p>\n

As we roll into July this weekend, next Friday, we’ll see the increase or “quarterly bump” in the forward estimate, which happens every quarter.<\/p>\n

We can get a peek at it now, by looking at the “forward earnings curve” all of the data from\/courtesy of ThomsonReuters I\/B\/E\/S:<\/p>\n

Q1’18 to Q4 ’18:<\/strong><\/em> $147.02<\/p>\n

Q4 ’17 to Q3 ’18:<\/strong><\/em> $143.08<\/p>\n

Q3 ’17 to Q2 ’18:<\/strong><\/em> $139.13<\/p>\n

Q2’17 to Q1’18:<\/strong><\/em> $134.73 (this is the last week we will see the estimate for 2nd quarter ’17 through 1st quarter, 2018)<\/p>\n

Next week, if the above data is reasonably accurate, the forward 4-quarter estimate should approximate $139, a nice $5 increase from this week’s print. It may be reduced a little during the coming week depending in some pre-announcements, etc. but it should be close to the $138 – $139 level, which bodes well for the market overall.<\/p>\n

——————————————————————-<\/p>\n

Thomson Reuters data (by the numbers):\u00a0<\/strong><\/em><\/p>\n

Forward 4-quarter estimate:<\/strong><\/em> $134.72 (last print for q2 ’17 through Q1 ’18 as we roll into Q3 ’17 – Q2 ’18 next week)<\/p>\n

P.E ratio:<\/strong> <\/em>18(x)<\/p>\n

PEG ratio:<\/strong><\/em> 1.82(x)<\/p>\n

SP 500 earnings yield:<\/strong><\/em> 5.56%<\/p>\n

Year-over-year growth of the forward estimate:<\/strong><\/em>\u00a0+9.75%, or the highest growth since mid-May ’17.<\/p>\n

Analysis\/Conclusion:<\/strong><\/em><\/p>\n

Technology and semiconductors look a bit wobbly right here, something Jeff Miller noted way back in April ’17, around Apple. (Long Apple, overweight Tech).<\/p>\n

The high multiple Tech stocks are sensitive to higher interest rates, so some “P\/E compression” could happen around FANG if rates rise rapidly, but this has been a worry since the equity market bottomed in early 2009. Besides, the 10-year Treasury yield rose roughly 100 basis points from early 2013 to late 2013, and the SP 500 rose 32% that same year.<\/p>\n

The Technology sector earnings need to be looked at closer for readers. That will be done this weekend.<\/p>\n

Financial’s had a heck of a rally last week, closing the under-performance gap with the SP 500, not entirely, but partially.<\/p>\n

If interest rates rise, I expect the dollar to rise with the Treasury rates, and that could take some of the steam off the Emerging markets trade.<\/p>\n

It’s a long weekend – enjoy the downtime, and enjoy the 4th of July holiday.<\/p>\n

Thanks for reading.<\/p>\n","protected":false},"excerpt":{"rendered":"

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