The true dichotomy in 2022’s stock market is that S&P 500 forward estimates continue to be revised higher, while the S&P 500 sinks lower.
The spreads between large-cap growth and value is very wide this year too. (The style-box analysis will be out tomorrow. Here is a look at the 3/31/22 style-box update.)
At some point, something has to give between S&P 500 EPS estimates and the indices.
The S&P 500 is trading at 17x the forward S&P 500 EPS estimate, down from a PE peak in the low 20x in late ’21.
As we explained to readers over time, don’t use these articles as a “market timing” tool. Use them as one important, fundamental piece of your market view. Sometimes, like in 2008, the S&P 500 EPS estimates can be deceptive—and as it was eventually learned, erroneous.
Bespoke had an interesting line on the first page of the Bespoke Report this weekend:
"Who would have ever thought that coming out of Covid would prove to be more difficult than Covid itself?"
Here’s 3 charts from the weekly Bespoke Report that, in my opinion, are quite telling:
Source: Bespoke Report
What was interesting about this past week—the 6th consecutive week of declines for the major stock market indices—was that the 10-year Treasury yield rallied from last week’s 3.12% – 3.13% to this week’s 2.93%.
That 10-year Treasury yield has been backing up every week during this stock market slide, as was noted in the post from last week. This past week, the SPDR® S&P 500 (NYSE:SPY) fell about 2% while the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) rallied +1.5%.
S&P 500 EPS data: (IBES data by Refinitiv)
- The forward 4-quarter estimate rose this past week to $235.25 vs last week’s $234.44 and the 12/31/21 estimate of $216.14
- The PE ratio on the forward estimate is now 17x, versus the 22x that began 2022
- The S&P 500 earnings yield is now 5.85%, versus last weeks 5.69% and 12/31/21’s 4.54%
- The Q1 ’22 bottom-up estimate increased again to $54.89 from last weeks $54.41 and 4/1/22’s $51.54
Quarterly estimated S&P 500 EPS and revenue growth rates
Source: Refinitiv’s “Earnings Scorecard”
Readers know that this is one of my preferred tables or format’s since it gives estimated revenue growth rates by quarter for the S&P 500.
Revenue growth rates have actually risen for 2022, quarter’s 2 – 4, while EPS growth rates have been revised a little lower.
A reader might say, “well that’s all Energy” but energy remains just 5% – 5% of the S&P 500 by market cap weight.
Summary/conclusion: The S&P 500 is trading at 17x forward EPS for an S&P 500 that is expected to grow EPS in 2022 between 9% – 10% as it stands currently.
The tech sector’s expected EPS growth for full-year 2022 is still 8.9%, which was the exact same full-year 2022 expected growth rate for the sector as last week.
The style-box analysis should show the continued strong “average, annual” returns for large-cap growth, which is one reason the big indices are struggling, mid-cap and small-cap aren’t exactly shooting the lights out.
The one statistic that has stood out for me personally since early in 2022 was from a good technical analyst who told me that a 1/3rd retracement of the S&P 500’s path from the March ’20 lows to the early January ’22 all-time-high, would be a pullback to the 3,800 level on the S&P 500.
I suspect that represents a “Fibonacci level” and what struck was the simple symmetry of the move.
This week the S&P 500 dipped below 4,000 so we we’re getting close. Is this level meaningful ? We’ll find out.
Remember, past performance is no guarantee of future results and none of this is a recommendation to buy, hold or sell anything. This article is written as a way to force me to keep up with the earnings data and grind out the numbers.
Nearly every single bond asset class and every single stock category is negative YTD. The dollar, as measured by the Invesco DB US Dollar Index Bullish Fund (NYSE:UUP) is up 9% though.
Think about that.
The title of today’s article might imply bullishness: just giving you the facts. Be sure and draw your own conclusions.