{"id":7224,"date":"2017-10-07T15:03:06","date_gmt":"2017-10-07T15:03:06","guid":{"rendered":"https:\/\/fundamentalis.com\/?p=7224"},"modified":"2017-10-07T15:03:06","modified_gmt":"2017-10-07T15:03:06","slug":"sp-500-extremely-overbought-but-forward-estimate-now-over-141-per-share","status":"publish","type":"post","link":"https:\/\/fundamentalis.com\/?p=7224","title":{"rendered":"SP 500 Extremely Overbought But Forward Estimate Now Over $141 per Share"},"content":{"rendered":"<p><a href=\"https:\/\/fundamentalis.com\/?attachment_id=7225\" rel=\"attachment wp-att-7225\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-medium wp-image-7225\" src=\"https:\/\/fundamentalis.com\/wp-content\/uploads\/bespokeoverbought1062017-300x204.png\" alt=\"\" width=\"300\" height=\"204\" srcset=\"https:\/\/fundamentalis.com\/wp-content\/uploads\/bespokeoverbought1062017-300x204.png 300w, https:\/\/fundamentalis.com\/wp-content\/uploads\/bespokeoverbought1062017.png 669w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a><\/p>\n<p>If you are not a Bespoke subscriber you should be since &#8211; for a very reasonable price &#8211; you get to read great research every week. (And Paul Hickey never gives discounts &#8211; to me anyway- for plugging his product.) The weekly Bespoke Report published every Friday is one of the best &#8220;summary&#8221; pieces I read each week, and with the Twitter and the blogosphere, there is a lot of quality research now available at very low cost.<\/p>\n<p>The thing is in past periods of an &#8220;overbought&#8221; market, the SP 500 just moved sideways for a while working off the overbought nature and never really &#8220;correcting&#8221;.<\/p>\n<p>Even as overbought as the SP 500 is today, it is still &#8220;relatively&#8221; lower than January &#8217;17 and all the excitement and anticipation over the Trump &#8220;pro-business&#8221; agenda.<\/p>\n<p><em><strong>Q3 &#8217;17 SP 500 earnings:\u00a0<\/strong><\/em><\/p>\n<p>Overall Q3 &#8217;17, SP 500 earnings growth is &#8220;expected&#8221; to come in at roughly +5%.<\/p>\n<p>Looking at the Thomson Reuters data, Financial sector estimates were revised lower sharply this week, probably due to Hurricane Harvey and Irma-related losses.<\/p>\n<p>Here was the <em><strong>change in Q3 &#8217;17 estimates<\/strong><\/em> in just the last week:<\/p>\n<ul>\n<li><em><strong>Cons Disc:<\/strong><\/em> +0.5% vs +0.5% as of 10\/1<\/li>\n<li><em><strong>Cons Spls:<\/strong><\/em> +3.5% vs +2.7% as of 10\/1<\/li>\n<li><em><strong>Energy:<\/strong><\/em> +136%, vs +134% as of 10\/1 (still lapping easy comp&#8217;s from last year)<\/li>\n<li><em><strong>Fincl&#8217;s:<\/strong><\/em> -6.2% vs +0.6% as of 10\/1<\/li>\n<li><em><strong>Hlth Care:<\/strong><\/em> +3.7% vs +3.7% as of 10\/1<\/li>\n<li><em><strong>Industrials:<\/strong><\/em> +5.1% vs +5.2% as of 10\/1<\/li>\n<li><em><strong>Basic Mat:<\/strong><\/em> +4.3% vs -0.4% as of 10\/1<\/li>\n<li><em><strong>Real estate:<\/strong><\/em> +3.3% vs +3.2% as of 10\/1<\/li>\n<li><em><strong>Technology:<\/strong><\/em> +12.2% vs +12.2% as of 10\/1<\/li>\n<li><em><strong>Telco:<\/strong> <\/em>-1.3% vs -1.3% as of 10\/1<\/li>\n<li><em><strong>Utilities:<\/strong> <\/em>-2.3% vs. -2.3% as of 10\/1<\/li>\n<\/ul>\n<p>Source: Thomson Reuters I\/B\/E\/S &#8220;This Week in Earnings&#8221; dated 10\/6\/17<\/p>\n<p><em><strong>Analysis:<\/strong> <\/em>Note the sharp downward revisions to Financial&#8217;s this week, but also note the sharp upward revision to Basic Materials, and Consumer Staples.\u00a0 it is somewhat unusual to see sharply higher revisions to numbers &#8220;pre-earnings&#8221; unless the Street has gotten specific guidance.<\/p>\n<p>The bigger issue though &#8211; thinking of &#8220;price&#8221; relative to earnings &#8211; is that most of the SP 500 remains &#8220;overbought&#8221; relative to historical levels:<\/p>\n<p><a href=\"https:\/\/fundamentalis.com\/?attachment_id=7229\" rel=\"attachment wp-att-7229\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-medium wp-image-7229\" src=\"https:\/\/fundamentalis.com\/wp-content\/uploads\/bepokesectorOB1072017-300x180.png\" alt=\"\" width=\"300\" height=\"180\" srcset=\"https:\/\/fundamentalis.com\/wp-content\/uploads\/bepokesectorOB1072017-300x180.png 300w, https:\/\/fundamentalis.com\/wp-content\/uploads\/bepokesectorOB1072017.png 578w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a><\/p>\n<p>Consumer Staples &#8211; particularly with the weaker dollar this year &#8211; looks to be the best relative sector value &#8211; given the combination of earnings trends and trading patterns.<\/p>\n<p><em><strong>Thomson Reuters data (by the numbers):\u00a0<\/strong><\/em><\/p>\n<ul>\n<li><em><strong>Fwd 4-qtr estimate:<\/strong><\/em> $141.87<\/li>\n<li><em><strong>P.E ratio:<\/strong> <\/em>18(x)<\/li>\n<li><em><strong>PEG ratio:<\/strong><\/em> 1.89(x)<\/li>\n<li><em><strong>SP 500 Earnings Yield:<\/strong><\/em> 5.56%<\/li>\n<li><em><strong>Year-over-year growth of fwd estimate:<\/strong><\/em> +9.52% after last week&#8217;s first print over 10% in years<\/li>\n<\/ul>\n<p><em><strong>Analysis \/conclusion:<\/strong><\/em> Note the bump in the forward estimate over $141 per share this week, that is a record again and each quarter the &#8220;roll&#8221; or &#8220;bump&#8221; into the next quarter should continue to see records as SP 500 earnings growth remains healthy.<\/p>\n<p>Q4 &#8217;17 earnings and revenue growth look particularly strong &#8211; that will be discussed tomorrow on the blog.<\/p>\n<p>There is a lot of different issues that get discussed each week in the financial media: tax reform, North Korea, the never-ending political discussions that are the functional equivalent of grade-school, spit-ball fights, but SP 500 earnings provide a longer-term frame of reference that should help readers and investors stay anchored when turbulence occurs.<\/p>\n<p>One last point: Carl Quintanilla, the talented and poised CNBC anchor who sits with Jim Cramer every weekday morning feeding Jim softballs for the CNBC morning viewing audience, noted in a tweet this week that<\/p>\n<p>&#8220;At this rate, there really WILL be some young, fund managers who&#8217;ve never known a down year.&#8221; (This is Carl&#8217;s tweet posted 10\/2\/17.)<\/p>\n<p>The point of this is not to pick on Carl, but I noted in a response that in the 1982 &#8211; 2000 secular bull market, the SP 500 had just one down year, and that was 1990, thanks to Saddam Hussein invading Kuwait.<\/p>\n<p>Here is the 1980&#8217;s and 1990&#8217;s secular bull market in the SP 500. The SP 500 annual return is the 4th column.<\/p>\n<p>Year<\/p>\n<table width=\"461\">\n<tbody>\n<tr>\n<td width=\"145\">1999 &#8211; actual<\/td>\n<td width=\"145\">$50.82<\/td>\n<td width=\"89\">15%<\/td>\n<td width=\"82\">21.04%<\/td>\n<\/tr>\n<tr>\n<td>1998 &#8211; actual<\/td>\n<td>$44.07<\/td>\n<td>1%<\/td>\n<td>28.58%<\/td>\n<\/tr>\n<tr>\n<td>1997 &#8211; actual<\/td>\n<td>$43.50<\/td>\n<td>6%<\/td>\n<td>33.36%<\/td>\n<\/tr>\n<tr>\n<td>1996 &#8211; actual<\/td>\n<td>$41.02<\/td>\n<td>6%<\/td>\n<td>22.96%<\/td>\n<\/tr>\n<tr>\n<td>1995 &#8211; actual<\/td>\n<td>$38.74<\/td>\n<td>42%<\/td>\n<td>37.58%<\/td>\n<\/tr>\n<tr>\n<td>1994 &#8211; actual<\/td>\n<td>$27.32<\/td>\n<td>19%<\/td>\n<td>1.32%<\/td>\n<\/tr>\n<tr>\n<td>1993 &#8211; actual<\/td>\n<td>$22.95<\/td>\n<td>12%<\/td>\n<td>10.08%<\/td>\n<\/tr>\n<tr>\n<td>1992 &#8211; actual<\/td>\n<td>$20.56<\/td>\n<td>-12%<\/td>\n<td>7.62%<\/td>\n<\/tr>\n<tr>\n<td>1991 &#8211; actual<\/td>\n<td>$23.47<\/td>\n<td>-3%<\/td>\n<td>30.47%<\/td>\n<\/tr>\n<tr>\n<td>1990 &#8211; actual<\/td>\n<td>$24.22<\/td>\n<td>-6%<\/td>\n<td>-3.10%<\/td>\n<\/tr>\n<tr>\n<td>1989 &#8211; actual<\/td>\n<td>$25.83<\/td>\n<td>46%<\/td>\n<td>31.69%<\/td>\n<\/tr>\n<tr>\n<td>1988 &#8211; actual<\/td>\n<td>$17.75<\/td>\n<td>15%<\/td>\n<td>16.61%<\/td>\n<\/tr>\n<tr>\n<td>1987 &#8211; actual<\/td>\n<td>$15.47<\/td>\n<td>-5%<\/td>\n<td>5.25%<\/td>\n<\/tr>\n<tr>\n<td>1986 &#8211; actual<\/td>\n<td>$16.28<\/td>\n<td>-2%<\/td>\n<td>18.67%<\/td>\n<\/tr>\n<tr>\n<td>1985 &#8211; actual<\/td>\n<td>$16.66<\/td>\n<td><\/td>\n<td>31.73%<\/td>\n<\/tr>\n<tr>\n<td>1984<\/td>\n<td><\/td>\n<td><\/td>\n<td>6.27%<\/td>\n<\/tr>\n<tr>\n<td>1983<\/td>\n<td><\/td>\n<td><\/td>\n<td>22.56%<\/td>\n<\/tr>\n<tr>\n<td>1982<\/td>\n<td><\/td>\n<td><\/td>\n<td>21.55%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<p>Source: SP 500 annual return data per Morningstar&#8217;s SBBI (Stocks, Bonds, Bills &amp; Inflation). SP 500 annual earnings data compliments of Thomson Reuters I\/B\/E\/S<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>If you are not a Bespoke subscriber you should be since &#8211; for a very reasonable price &#8211; you get&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":[165,23,91],"tags":[],"class_list":["post-7224","post","type-post","status-publish","format-standard","hentry","category-bespoke","category-cnbc","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\/7224","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=7224"}],"version-history":[{"count":10,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/7224\/revisions"}],"predecessor-version":[{"id":7238,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/7224\/revisions\/7238"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=7224"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=7224"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=7224"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}