Tuesday, June 18, 2013

S&P 500 Forward Earnings (excerpt)

The forward earnings of all three S&P market cap indexes rose to new record highs again last week. On a year-over-year basis, forward earnings for the S&P 500, S&P 400, and S&P 600 are up 5.0%, 7.7%, and 9.3%, respectively. That’s provided the underlying support for 22.8%, 28.0%, and 30.4% y/y gains in their comparable stock price indexes. Obviously, rising valuations accounted for most of the stock price gains over the past year. But those gains wouldn’t have happened if earnings had been decreasing instead of increasing.

Joe and I have been forecasting that S&P 500 forward earnings will rise to $118 a share by the end of this year, which is also our forecast for 2014’s earnings. However, forward earnings is already up to $116.84 during the week of June 13.

One note of caution: We are a bit surprised by the strength in forward earnings given the recent weakness in S&P 500 forward revenues. We monitor lots of domestic and global economic indicators that are highly correlated with S&P 500 revenues. The y/y growth rates of almost all of them are in the low single digits and seem to be heading toward zero. For example, US manufacturing and trade sales rose just 1.5% y/y during April.

Today's Morning Briefing: Much Ado About Not Much? (1) Is the market getting the Fed’s message? (2) NZIRP is “forever” more than QE. (3) Goodbye Ben. Hello Janet? (4) Stop the taper tantrum! (5) No summer crisis in Europe this year? (6) Bearish non-events are bullish. (7) Another record high for forward earnings. (8) Bouncing off the 50-dma. (9) Averting the fiscal cliff was bullish. (10) Not much fiscal drag after all. (11) Less stress in European banking system. (12) BRICs have a ton of problems. (13) Let’s Stay Home. (14) Focus on overweight-rated housing-related industries. (More for subscribers.)

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