{"id":8535,"date":"2018-12-17T14:31:56","date_gmt":"2018-12-17T14:31:56","guid":{"rendered":"https:\/\/fundamentalis.com\/?p=8535"},"modified":"2018-12-17T14:31:56","modified_gmt":"2018-12-17T14:31:56","slug":"a-brief-history-of-the-sp-500-earnings-yield","status":"publish","type":"post","link":"https:\/\/fundamentalis.com\/?p=8535","title":{"rendered":"A Brief History of the SP 500 Earnings Yield"},"content":{"rendered":"<p><a href=\"https:\/\/fundamentalis.com\/?p=8516\">Saturday&#8217;s blog post<\/a> declaring that the SP 500&#8217;s &#8220;earning yield&#8221; as of Friday, December 14th&#8217;s close, was the highest since early January &#8217;16.<\/p>\n<p>Here is a brief history of the earnings yield over the last 3 years:<\/p>\n<ul>\n<li>The EY spiked to 6.52% in late October &#8217;18, closing the week of 10\/26\/18 at 6.52%, coinciding with the SP 500 lows at 1,603 that week;<\/li>\n<li>For most of 2018, the SP 500 earnings yield has traded between 5.75% and 6.10%, remarkable consistency although the SP 500 up to early October, was remarkably stable as well.<\/li>\n<li>For the first five weeks of 2018, up until February 9th, the SP EY rose from 5.40% in early Jan &#8217;18 to over 6% by February 9th.<\/li>\n<li>For 2017, the EY gravitated between 5.80% in early &#8217;17 to 5.35% later in the year after the 21% rally in the SP 500 for calendar 2017.<\/li>\n<li>For early 2016, the SP 500 earnings yield spiked to 6.68% and remained elevated for most of Q1 &#8217;16 between 6% and 6.50%.<\/li>\n<li>For the rest of 2016, from April 1 forward, the SP 500 earnings yield gravitated between 5.75% and 6%.<\/li>\n<\/ul>\n<p>Here is a graph of the SP 500 Earnings yield prepared from the Excel spreadsheet which tracks such data, showing the range of the EY the last 156 weeks or 3 years:<\/p>\n<figure id=\"attachment_8537\" aria-describedby=\"caption-attachment-8537\" style=\"width: 300px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/fundamentalis.com\/?attachment_id=8537\" rel=\"attachment wp-att-8537\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-8537\" src=\"https:\/\/fundamentalis.com\/wp-content\/uploads\/SP500EY121718-300x147.png\" alt=\"\" width=\"300\" height=\"147\" srcset=\"https:\/\/fundamentalis.com\/wp-content\/uploads\/SP500EY121718-300x147.png 300w, https:\/\/fundamentalis.com\/wp-content\/uploads\/SP500EY121718-768x378.png 768w, https:\/\/fundamentalis.com\/wp-content\/uploads\/SP500EY121718.png 828w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a><figcaption id=\"caption-attachment-8537\" class=\"wp-caption-text\">click to enhance \/ enlarge<\/figcaption><\/figure>\n<p>&nbsp;<\/p>\n<p><em><strong>Summary \/ conclusion: <\/strong><\/em>Like all market metrics, the SP 500 &#8220;earnings yield&#8221; is an imperfect timing tool for investors. However in the 2015 &#8211; 2016 correction, as the SP 500 earnings yield spiked into the 5.50% &#8211; 5.60% range as it has now done at the October &#8217;18 lows and with last Friday&#8217;s close, the yield is a good indicator of relative value.<\/p>\n<p>Can the SP 500 EY go higher ? Absolutely &#8211; I took a look at the late 2011 earnings yield after the SP 500&#8217;s 20% correction from May &#8217;11 through early October, 2011 and the EY shot up from 7.75% to over 9%. Even Dr. David Kelly, JP Morgan&#8217;s chief economist noted the SP 500&#8217;s elevated earnings yield when he came through Chicago in July, 2012, when the SP 500 EY was between 8% and 8.50%.<\/p>\n<p>My own thinking of the SP 500 EY as a valuation indicator is that it&#8217;s still indicating the relative attractiveness of the SP 500 over bonds, and that as we look at the market during a horrible December &#8217;18, either we are going to see a plethora of negative earnings pre-announcements shortly, or the SP 500 should find a bid given the forward estimates.<\/p>\n<p>So far SP 500 &#8220;price&#8221; is falling faster than the forward estimate (which is also gradually reflecting slower earnings growth as expectations are tempered for 2019) which is driving the SP 500 earnings yield higher.<\/p>\n<p>The SP 500 is down 1% for calendar &#8217;18 YTD and is down 10% &#8211; 11% from the late September &#8217;18 highs.<\/p>\n<p>Take it as one opinion, but this SP 500 pullback is still more likely to be an ordinary pullback than the start of a bear market.<\/p>\n<p>Thanks for reading.<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Saturday&#8217;s blog post declaring that the SP 500&#8217;s &#8220;earning yield&#8221; as of Friday, December 14th&#8217;s close, was the highest since&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":[162],"tags":[],"class_list":["post-8535","post","type-post","status-publish","format-standard","hentry","category-sp-500-earnings-yield"],"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\/8535","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=8535"}],"version-history":[{"count":3,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/8535\/revisions"}],"predecessor-version":[{"id":8539,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/8535\/revisions\/8539"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=8535"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=8535"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=8535"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}