{"id":9334,"date":"2019-09-23T13:59:40","date_gmt":"2019-09-23T13:59:40","guid":{"rendered":"https:\/\/fundamentalis.com\/?p=9334"},"modified":"2019-09-23T13:59:40","modified_gmt":"2019-09-23T13:59:40","slug":"will-2020s-expected-11-12-growth-rate-for-sp-500-eps-hold-up","status":"publish","type":"post","link":"https:\/\/fundamentalis.com\/?p=9334","title":{"rendered":"Will 2020&#8217;s Expected 11% &#8211; 12% Growth Rate for SP 500 EPS Hold Up ?"},"content":{"rendered":"<p>Using IBES by Refinitiv data for years, there is always the question of what period do we (the collective &#8220;we&#8221; as in readers too) watch in terms of forward SP 500 earnings estimates to get a true take on the market ?<\/p>\n<p>The answer is &#8220;all of them&#8221;.<\/p>\n<p>This weekend, this blog took a look at the trends in <a href=\"https:\/\/fundamentalis.com\/?p=9328\">Q3 &#8217;19 SP 500 EPS and revenue estimates<\/a>, but Q4 &#8217;19 and 2020 are also being watched as well.<\/p>\n<p>With Q3 &#8217;19 earnings releases, some companies will give a first pass at 2020 guidance and then immediately follow-up with the comment &#8220;but we&#8217;ll have further color on the Q4 &#8217;19 conference call&#8221;, hence analysts will be looking to update their models for 2020 as early as October &#8217;19.<\/p>\n<p>There will undoubtedly be plenty of negative blowback from blog and SeekingAlpha readers, but ignore the 2020 expected sector earnings growth rates at your peril.<\/p>\n<p>However, what anyone has difficulty predicting is the degree of PE expansion or contraction&#8221; that occurs with a particular level of SP 500 sector earnings growth.<\/p>\n<p>In 2018, SP 500 earnings grew 23% (14% organically per Factset) on the calendar year and the SP 500 fell 4.5%.<\/p>\n<p>In 2019 (so far), SP 500 earnings are expected to grow just 1 &#8211; 2% this year, and yet the SP 500 is up 20%+ this year.<\/p>\n<p><em><strong>SP 500 earnings data (by the numbers):\u00a0<\/strong><\/em><\/p>\n<ul>\n<li><em><strong>Fwd 4-qtr est:<\/strong><\/em> $171.14, down from $171.38 the prior week<\/li>\n<li><em><strong>Fwd PE:<\/strong><\/em> 17.5x<\/li>\n<li><em><strong>Fwd PEG:<\/strong><\/em> 14x<\/li>\n<li><em><strong>Fwd SP 500 earnings yield:<\/strong><\/em> 5.72% vs last week&#8217;s 5.70%<\/li>\n<li><em><strong>Fwd y\/y gro rate:<\/strong><\/em>\u00a0 +1.22% vs 1.55% last week<\/li>\n<li><\/li>\n<li><em><strong>TTM PE:<\/strong> <\/em>18.9x<\/li>\n<li><em><strong>TTM PEG:\u00a0<\/strong><\/em>4x<\/li>\n<li><em><strong>TTM SP 500 earnings yield: <\/strong><\/em>+5.50% vs 5.47% last week<\/li>\n<li><em><strong>TTM growth rate SP 500 EPS<\/strong><strong>: <\/strong><\/em>+4.07% vs +4.22% last week<\/li>\n<\/ul>\n<p><em><strong>Summary \/ Conclusion: <\/strong><\/em>When 2018 and 2019 is averaged as we did on the blog a few weeks back, and using the 14% organic return for SP 500 earnings for 2018, the last two years have been just &#8220;average&#8221; in terms of SP 500 earnings growth (+14% +2% = 16% \/ 2 = 8%) and SP 500 return (-4.5% + 22%) \/2 = 8.75%. The 17x forward PE ratio results in the SP 500 today being pretty fairly valued, with depressed Technology revenue (see this weekend&#8217;s blog post linked above), which remains the largest sector at 20% of the SP 500 market cap.<\/p>\n<p>The <a href=\"https:\/\/fundamentalis.com\/?p=9298\">longer-term &#8220;average annual&#8221; return for the SP 500<\/a> remains below its long-term average, which should keep readers bullish.<\/p>\n<p>Right now, looking at that unwavering 11% &#8211; 12% growth for the SP 500 earnings in 2020, as a first pass, I think we see an average year next year in terms of SP 500 total return. (I reserve the right to amend this with the final December &#8217;19 forecast that is usually done the last few weeks of each calendar year.)<\/p>\n<p>Since the 2020 11% &#8211; 12% expected growth rate has remained so constant, you should give it more weight as we head in Q4 &#8217;19. The tariff issue with China matters. I worry about that since it is unlikely the full tariff&#8217;s are in the estimates and won&#8217;t be until the tariff&#8217;s are declared.<\/p>\n<p>These are only opinions: be skeptical and judge the data for yourself. This opinion. I would like to see how Q4 &#8217;19 earnings trends develop and change, with Q3 &#8217;19 commentary, given Q4 &#8217;18 saw the first quarter last year that we started to see a sharp deceleration in SP 500 earnings growth,<\/p>\n<p>One positive tell for me is that high-yield corporates, (i.e the ETF&#8217;s like HYG, JNK, etc.) continue to hold up and have had positive returns. Recession worries would \/ might show up in the corporate high-yield asset class first.<\/p>\n<p>The tariff tiff matters &#8211; that is the one fly-in-the-ointment.<\/p>\n<p>Thanks for reading.<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Using IBES by Refinitiv data for years, there is always the question of what period do we (the collective &#8220;we&#8221;&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":[230,193,226,40],"tags":[],"class_list":["post-9334","post","type-post","status-publish","format-standard","hentry","category-2020-sp-500-earnings-data","category-corporate-high-yield","category-credit-markets","category-hyg"],"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\/9334","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=9334"}],"version-history":[{"count":6,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/9334\/revisions"}],"predecessor-version":[{"id":9340,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/9334\/revisions\/9340"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=9334"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=9334"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=9334"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}