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S&P 500 Earnings Update: 17x P/E, 5.85% Earnings Yield and Futures Estimates Rise Again

By on May 16, 2022 0

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The real stock market dichotomy of 2022 is that forward estimates for the S&P 500 continue to be revised higher while the S&P 500 declines.

The gaps between large cap growth and value are very wide this year too. (Here is a preview of 3/31/22 style box update.)

At some point, something has to give between the S&P 500 EPS estimates and the indices.

The S&P 500 is trading at 17x the forward EPS estimate of the S&P 500, down from a P/E peak in the 20x low at the end of ’21.

As this blog has explained to readers over time, do not use this blog as a “market timing” tool. Use it as an important and fundamental part of your market vision. Sometimes – like in 2008 – S&P 500 EPS estimates can be misleading – and as we eventually learned, wrong.

Bespoke had an interesting line on the front page of the Bespoke Report this weekend: ‘Who would have ever thought getting out of Covid would prove more difficult than Covid itself?’

Here are 3 graphs from the weekly Bespoke Report which – in my opinion – are quite revealing:

Charts S&P 500, Nasdaq, Russell 2000

Tailor-made report

What was interesting about last week – the 6th consecutive week of declines in major equity indices – was that the 10-year Treasury yield fell from 3.12% to 3.13% last week at 2 .93% this week. This 10-year Treasury yield has retreated every week during this stock market plunge, as noted in last week’s weekly post. Last week, SPY fell around 2% while TLT (Treasury +20-year ETF) rebounded +1.5%.

S&P 500 EPS data: (IBES data by Refinitiv)

  • The 4-quarter forward estimate increased last week to $235.25 from $234.44 last week and the 12/31/21 estimate of $216.14;
  • The P/E ratio on the forecast estimate is now 17x, compared to 22x from 2022;
  • The S&P 500 earnings yield is now 5.85%, down from 5.69% last week and 4.54% on 12/31/21;
  • The upward estimate for Q1 ’22 rose again to $54.89 from $54.41 last week and $51.54 on 04/01/22.

Quarterly estimate of S&P 500 EPS and revenue growth rates

Quarterly estimate of S&P 500 EPS and revenue growth rates

Data source is Refinitiv’s “Revenue Scorecard”

Readers know this is one of my favorite charts or formats because it gives estimated earnings growth rates by quarter for the S&P 500.

Revenue growth rates have actually increased for 2022, quarters 2-4, while EPS growth rates have been revised down a bit.

A reader might say, “well, that’s all energy,” but energy only makes up 5% to 5% of the S&P 500 based on market capitalization.

Summary/conclusion: The S&P 500 trades at 17 times forward EPS for an S&P 500 expected to increase EPS in 2022 between 9% and 10% as it currently stands. The expected full-year 2022 EPS growth for the technology sector is still 8.9%, exactly the same expected full-year 2022 growth rate for the sector as last week.

Our next style box analysis should show the continued strong “annual average” returns for large cap growth, which is one of the reasons why large indices are in trouble, mid and small caps are not s not turn off exactly.

The only statistic that has stuck with me personally since the start of 2022 comes from a good technical analyst who told me that a one-third retracement of the S&P 500’s trajectory from the March 20 lows to the all-time high early Jan 22 would be a pullback to the 3,800 level on the S&P 500. I suspect this represents a “Fibonacci level” and what struck was the sheer symmetry of the move.

This week, the S&P 500 fell below 4,000, so we are getting closer. Is this level significant? We will find out.

Remember that past performance is no guarantee of future results and none of this is a recommendation to buy, hold or sell anything. This blog is written as a way to force me to track income data and grind the numbers.

Almost all bond asset classes and all equity categories have been negative year-to-date. The dollar – as measured by the UUP – is up 9%, however.

Think about it.

The title of this article might imply optimism: just giving you the facts. Be sure and draw your own conclusions.

Thanks for reading.

Original post

Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.