The big issue for the S&P 500 and the US stock market (in my opinion) is that—after the Friday jobs report, which was much stronger than expected at +476,000 net new jobs added to the US economy in January ’22—the 10-yearTreasury is now testing the pre-COVID, early 2020 high yield print of 1.91%.
The fact is S&P 500 earnings could be great this year and if the 10-year Treasury yield gets much above 2%, it’s going to weigh on the equity market.
However, this week’s IBES data by Refinitiv, which is the source of this blog’s earnings work, showed strong revisions to forward EPS data and that may not include Amazon’s Q4 ’21 quarter or the Friday, February 4th, 2022, jobs report since Refinitiv cuts off the data as of Thursday night.
Here are the numbers:
- The forward 4-quarter estimate increased to $225.02 versus last week’s $223.07 and the start of this year’s initial estimate of $223.25;
- The PE ratio on the forward estimate is 20x;
- The S&P 500 “earnings yield” finished the week at 5% even, versus 5.05% and 5.09% the last two weeks;
- The Q4 ’21 bottom-up quarterly estimate finally moved off the $51 level which it has been sitting at since July ’31 ’21, to end this week at $53.12;
Looking at the above table, you can tell by this Refinitiv data that this site tracks weekly, that 2022 will be a year of tough comparisons versus 2021, as interest rates rise, which could be the double-whammy for the S&P 500.
Here’s another chart from Refinitiv that is always on the first page of “This Week in Earnings.”
The chart shows the actual dollar increase in net income every quarter, which I like. These net income spikes always happen around the mega-cap reporting period, and then the line typically flattens out in the last month of the quarter.
Here’s the same chart from 12/31/21 showing the whole of the Q3 ’21 reporting period.
Personally I love that Refinitiv provides this to readers.
If you ever want to watch a client’s or reader’s eyes glaze over, start talking “earnings per share” (EPS) and the concept of EPS to stock prices.
The favorite S&P 500 EPS and revenue table:
Note the jump in “expected” 2022 EPS and revenue growth rates.
Summary / conclusion: Removing the tremendous liquidity added by the Fed in March ’20 is now the story for ’22 and it’s likely to be far more powerful to equity market valuations than what would or could be a decent year for S&P 500 earnings growth.
Readers can see in the first spreadsheet that 2021 S&P 500 EPS is expected to be +50% growth, while 2022 might be just 10%–12%.
Russia–Ukraine is another wild card, as is the fact that many other central banks are already raising short-term interest rates.
Lisa Abramowicz, who I think is an excellent Bloomberg reporter, posted this tweet on Friday on the decline in negative-yielding debt around the globe:
Maybe liquidity is coming out of the global financial system even faster than we think.
Take everything you read here with substantial skepticism. Do your own homework. Past performance is no guarantee of future results.