Even though the 10-year Treasury yield fell 15 bps on the week, from 3% to 2.85%, the “forward 4-quarter” estimate rose $0.04 sequentially, ending the week at $171.05, up from $171.01.

What’s unusual about the sequential increase of $0.04 is that it was the first sequential increase in the S&P 500’s forward 4-quarter estimate since September 14th, 2018. Here is the data: (Source: IBES by Refinitiv)

  • Fwd 4-qtr est: $171.05 vs. last week’s $171.01
  • PE ratio: 15.4x
  • PEG ratio: 1.84x
  • S&P 500 earnings yield: 6.50% vs. last week’s 6.19%
  • Year-over-year growth of the fwd est: +8.4% vs. last week’s +8.4%

Using the old method of calculating the “forward 4-quarter estimate growth rate” (the estimate today vs. the estimate 52 weeks prior), the expected forward growth rate is still 20%. Once we lap into 2018 for the 52-week prior estimate, that forward growth rate will drop in line with the calendar 2019 growth rate.

Using the forward estimate vs. the four-quarter trailing actual, the 8.4% growth rate is in line with the 2019 bottom-up calendar estimate of $176.25.

Using the $176.26 current Street consensus for the S&P 500 estimate for 2019, and assuming a 15x multiple, the S&P is trading very close to the 2,643-2,644 S&P 500 value. Leon Cooperman said something similar this week on CNBC’s Halftime Show, and he was using a $172 estimate for calendar 2019.

So, the question is then, is the current 2019 S&P 500 calendar-year estimate of $176.25 too high, too low, or just right?

Summary/Conclusion: The S&P 500 earnings yield of 6.5% this week is the 2nd highest S&P 500 earnings yield since the current correction began in early October 2018, and that print of 6.52% occurred the week ending October 26, 2018.

Technically, the November low for the S&P 500 of 2,632.56 and the October 2018 low of 2,600 roughly are still intact. Those are the key levels that will dictate changes in portfolios, if only slightly.

Here is one last interesting point: as this blog post is being written prior to having dinner with a client tonight in Chicago and as I prepared a spreadsheet showing current account values for the client accounts, the account values at the close of business tonight were almost exactly what they were on June 30, 2018 or the end of the 2nd quarter. Remember it was the third quarter where we saw the sharp ramp in Tech, particularly Apple (NASDAQ:AAPL). Apple ran from roughly $185 at the end of June to $230 by the end of September, or first two days of October.

In terms of the S&P 500, all we (meaning investors) have given back since October 1 is the 3rd quarter rally. The S&P 500 was up 2.65% YTD as of June 30, 2018.

These are 60%/40%, 65%/35% asset-allocated accounts between traditional stocks and bonds.

The question being asked about the 2019 S&P 500 estimate will be addressed as we head into the end of the year.

More to come this weekend.



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