To cut to the chase, here is the chronological progression of the S&P 500 (NYSE:SPY) forward growth rate:
- 5/5/17: +9.8%
- 4/28/17: +8.2%
- 4/21/17: +8.3%
- 4/14/17: +8.3%
- 4/7/17: +8.3%
- 3/31/17: +6.06%
- 3/24/17: +8.96%
To be frank with readers, I’m surprised at the jump in the forward 4-quarter growth rate to 9.8% this week, since with Q1 ’17’s +14.7% y/y growth, the expectation was that growth over the next few quarters would slow, if only because the SP 500 would start lapping tougher comp’s (higher growth rate) with each quarter in 2016.
2016’s SP 500 earnings bottomed in Q1 ’16 – here is what the progression looked like last year:
- Q4 ’16: $31.30
- Q3 ’16 $31.21
Q2 ’16: $29.61 - Q1 ’16: $26.96
With the crude oil and commodity crash in Q1 ’16, note the increase in Q1 and Q2 ’16 bottom-up quarterly earnings for the SP 500.
The fact that the forward 4-quarter increase jumped that much portends favorably for the SP 500 for the rest of the year (in my opinion). However corrections come along at any time and for any reason.
Manage your risk.
Thomson Reuters data (by the numbers):
- Forward 4-quarter estimate: $135.06
- P.E ratio: 17.8(x)
- PEG ratio: 1.8(x)
- SP 500 earnings yield: 5.63% vs 5.66% last week.
- Year-over-year growth of the forward 4-quarter estimate: +9.8% vs last week’s +8.2%
All the numbers portend favorably for the SP 500.
The energy overweight was reduced this past week, to a lone position in the XLE (NYSE:XLE) remaining. The iShares US Energy (NYSE:IYE) was sold at a small gain, maybe 3% – 5%, although some accounts had an equivalent loss. Friday’s, May 5th. rally in Energy and the XLE and IYE didn’t see even average volume on the ETF’s despite heavy volume to the downside on Thursday. Not sure how long I’ll hold the XLE for clients.
Apple (NASDAQ:AAPL) looks like it is set to make another run higher. Interesting fact: from March 22, 2015, high of $133.20 Apple actually under-performed the SP 500 through Friday of last week, 4/28/17, by roughly 200 bp’s 15% vs 17%. With earnings this week, Apple looks ready to make another run higher. (Long Apple, bought a little more today.)
Finally, Q1 ’17’s earnings grew y/y close to 15%. Cant tell you the skepticism when I said in late March ’17 that the SP 500 would grow Q1 ’17 earnings between 12% and 14%. Only Jeff Miller over at Dash of Insight and Weighing the Week Ahead, who follows earnings data closely as well, and picks up this blog, understood the reality of SP 500 earnings.
To be clear as day for readers, I still think the SP 500 is on track for a potential 20% return this year. Forecasts are like vital body parts though – everybody has one, and they can be wrong.
SP 500 earnings data – particularly that forward growth rate if it holds and expands from here – portends very favorably for the SP 500 forward returns.