S&P 500 Earnings Remain Strong: Upside Surprise Higher than Last Few Quarters
Brian Gilmartin | May 06, 2024 02:11AM ET
With tech earnings out of the way, S&P 500 earnings continue to be healthy, robust in fact, although that’s been the case for a while.h2 S&P 500 Data:/h2
- The forward 4-quarter estimate was revised higher again (sequentially) to $253.25 from last weeks $252.55.
- The PE ratio on the forward estimate is 20.2x, equal with last week’s 20.2x.
- The S&P 500 earnings yield was 4.94% versus last week’s 4.95%.
- The Q1 ’24 bottom-up estimate has risen from $54.92 to $55.78 in the last 6 weeks.
- With 397 S&P 500 companies having reported, the “upside surprise” this quarter for S&P 500 EPS is +8.4% bigger than the three previous quarters, which were quite strong in the mid to high-single-digits.
Here’s the last 4 quarter progression for S&P 500 EPS upside/downside surprise:
- Q1 ’24: currently +8.4%
- Q4 ’23: +6.3% (final);
- Q3 ’23: +7.2% (final);
- Q2 ’23: +7.9% (final)
This week’s numbers likely don’t include Apple (NASDAQ:AAPL), since they reported Thursday night after the closing bell. Any revisions will likely show up early next week in the LSEG numbers.
h2 S&P 500: Expected Quarterly EPS and Revenue Growth RatesNote the Q1 ’24 EPS column: investors started 2024 looking at an expected 7.4% S&P 500 EPS growth rate for Q1 ’24, which then fall all the way to 2.7% the week of 4/12/24, and has now bounced back rapidly to +7.1% as of this week, 5/3/24, and will likely work higher in the next few weeks.
As the old Led Zeppelin song was titled, “The Song Remains the Same”.
h2 Let’s Look at “rate-of-change”:Haven’t shown this graph to readers in a while and it’s proprietary work.
Get The News You Want
Note the first column, and the various 4-quarter segments: this is like a forward S&P 500 EPS curve (i.e. like the Treasury curve ) using forward 4-quarter S&P 500 EPS estimates.
Note from the bottom to the top – from Q2 ’23 through Q1 ’24 (starting bucket) through Q1 ’24 to Q4 ’25, (final bucket), the S&P 500 EPS is expected to increase $50 in dollars, not percentages.
Just taking the straight math of trailing 12-month EPS of $225.64 and then divide it into the “forward 4-quarter estimate” the difference is $25.
This changes every week, but i wanted to give readers some feel for the actual dollar EPS involved since it’s always about percentages.
Note the 1-week and 4-week rates of change: they are still being revised upward, when the typical pattern is toe see negative revisions.
Here’s the current S&P 500 EPS estimate for 2024 – 2026:
- 2026 est: $310.23
- 2025 est: $277.56
- 2024 est: $243.74
Readers will laugh (or cringe) but taking the S&P 500’s close today and dividing it by $310 or the 2026 EPS estimate leaves the S&P 500 with a 16x PE at the close today.
S&P 500 earnings are decent, and it’s more than just the Mag 7: almost every sector of the S&P 500 except industrials and health care are showing higher expected growth rates for ’24 (full-year) than in early Jan 24.
The strongest revisions higher are communication services (likely due to GOOGL) and financials.
h2 Conclusion: /h2Despite good Q1 ’24 earnings reports the major tech / discretionary and / or communication services companies have yet to take out recent all-time highs. Microsoft (NASDAQ:MSFT) is still short of it’s recent ATH near $430. Amazon (NASDAQ:AMZN) is still short of the 2021 ATH’s near $188 – $189. Until today, Bonds just haven’t helped the equity market much. In Q4 ’23 and q1 ’24 the S&P 500 returned roughly 10% each quarter and then as soon as the 10-year Treasury yield drifted back towards 5% or the high yield from last October ’23, the S&P 500 lost 4% in April ’24.
Rising interest rates and the uncertainty around Fed policy are like a wet blanket for the stock market. Last night this blog post tried to make a case that longer-term Treasury returns were getting stretched to the downside, but after nearly 8 years of ZIRP (2008 to 2016) and then another 2 years of ZIRP (March ’20 to March ’22) maybe it will take still higher rates to slow the US economy.
We just don’t know.
But we do know S&P 500 earnings continue to remain healthy. One favorite indicator is to watch the credit card data out of the major banks each month. It’s unsecured credit so if a US consumer has a choice between not paying the credit card bill or the mortgage, guess which one will be neglected?
Also, keep an eye on high-yield credit spreads. That’s another early warning indicator. They do need to widen a little (in my opinion). High yield credit spreads peaked at 13% – 15% in 2002 and 2003 with Enron and Worldcom defaults, and then blew out to 25% in 2008. (In hindsight, that’s pretty amazing. High yield today – the ETF’s like SHYG and HYG – yield 7.50% – 8%.
Thanks for reading.
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