The combination of a $4.89 increase in the forward 4-quarter estimate two weeks ago, and then the 4% drop in the S&P 500 this past week, has produced an usually high S&P 500 earnings yield of 6.27%.
Looking at my own spreadsheet data to see when the last time that happened, the last week of January and then February, 2016, the S&P 500 earnings yield put in a series of prints between 6.25% – 6.50%.
Usually anytime the S&P 500 gets to 6% there is a bid in the market shortly, so getting above 6.10% has been a struggle.
Refinitiv IBES data:
- Fwd 4-qtr est: $173.57 vs last week’s $173.61
- PE ratio: 15.9x
- PEG ratio: 0.71x
- S&P 500 earnings yield: 6.27% vs last weeks 6.02%
- Year-over-year growth of fwd estimate: +22.32%, the fourth straight week of deceleration.
This blog has written about the S&P 500 earnings yield many times over the years, and I’ve noted that typically any print over 6% is usually a buy signal, for longer-term investors. Of course that ignores the dampening effect of interest rate increases. Here are some previous posts on the earnings yield in the last few months, here, here and here.
The S&P 500 saw a nice bump from the TC&JA in early 2018, as lower corporate tax rates boosted earnings per share (read the last link).
We’ll see what happens – the reaction to bank earnings today, was not a good feeling. PNC noted that loan growth was down on what looked to be early payoffs. Corporations are flush with cash with lower tax rates. That should help buybacks. I’m staying with the Financial sector overweight, although I’m puzzled with the revenue and earnings growth of Energy and Financials, why the sectors trade like dead wood.