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S&P 500 Earnings: Classic Year of P/E Expansion Ahead?

Published 07/17/2023, 01:47 AM
Updated 07/09/2023, 06:31 AM

Lots of banks reporting this week.

The global custodial banks like State Street (NYSE:STT), Bank of New York Mellon (NYSE:BK) and Northern Trust (NASDAQ:NTRS) don’t look very healthy. State Street brought down the group with Friday’s earnings release. Of all the “bigs” that were reported Friday, only State Street and Progressive Corp (NYSE:PGR) missed on revenue. That’s a good sign for the financial sector in my opinion. This article gave readers a heads-up last week.

Western Alliance Bancorp, (NYSE:WAL) one of the regional banks that was trading like it was headed into bankruptcy in March, reports Tuesday, July 18th, after the closing bell. The SPDR Regional Bank ETF (KRE) is trading better, back above $40, after multi-year lows in May ’23.

S&P 500 data:

  • The forward 4-quarter estimate fell to $229.97 from last week’s $230.26, and early January’s $228.38;
  • The PE on the forward estimate is now 19.6x this week, versus 19.1x last week and 17x in early January ’23;
  • The S&P 500 earnings yield fell to 5.11% from last week’s 5.23% and early January’s 5.86%;
  • Refinitiv fixed the final Q1 ’23 bottom-up estimate issue written about last week here, back to the correct final number of $53.08;
  • The Q2 ’23 bottom-up estimate on June 30 was $52.91 but is now down to $50.99;

The interesting part to the 2023 S&P 500 EPS data is that 2023 is now expecting 0% – 1% EPS growth for 2023, which you would think would give readers pause in terms of chasing the market here in the last half of ’23. The tech sector, as of Friday, June 14th, is expecting less than 1% EPS growth in ’23 (+0.9%) and notes it’s YTD return.

2024 – which might generate a laugh from readers – is still looking pretty good in terms of S&P 500 EPS growth at +13% expected today, starting out the year at +12%

We could definitely see a flat year for the S&P 500 next year and yet EPS will show healthy growth.

It all depends on whether the S&P 500 PE expands or contracts.

Usually, when we see years of PE expansion, the long end of the Treasury curve cooperates, thus allowing PEs to expand. Not so much this year.

Summary/conclusion:

Keeping it short and sweet this weekend, to do some triathlon training.

In Q1 ’23 the S&P 500 EPS upside surprise was 5% – 6%, I don’t think we’ll see that magnitude in Q2 ’23 because NVDA’s EPS was boosted so much, and the rally has the Street a little bit more aggressive, but 3% – 4% upside surprise would certainly be reasonable, and those could grow in the back half of the year, because in 2022, the numbers started to fall off in late 2022.

None of this is an opinion and past performance is no guarantee of future results.

Thanks for reading.

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