S&P 500 Earnings Update And Economic Data Review - Saturday, March 27

The earnings per share (EPS) for all S&P 500 companies combined declined slightly to $175.23 this week. The forward EPS is +10.2% so far this year. I expect a sizable increase in the EPS as we roll into the new quarter -- probably as early as next week.

The S&P 500 index increased 1.57% this week. Another all-time closing high.

The slight decline in EPS this week, plus the increase in price, pushes the price to earnings (PE) ratio up to 22.7

The earnings yield on the S&P 500 is now 4.41%, while the 10-year Treasury yield declined to 1.66% (the first weekly decline since the week ending Jan. 15), making the equity risk premium (earnings yield minus 10-year Treasury rate) 2.75%. Stocks are still reasonably priced even at these levels.

Economic Data Review

New home sales for February came in at 775 thousand, well below the streets expectations of 872 thousand. January’s number was revised higher, from 923 thousand to 948 thousand. February’s results were down 18.3% for the month, but still up 8.2% from this time last year. The declines were relatively broad based across regions, but the biggest decline was in the Midwest (-37.5%), which was dealing with the harsh winter weather.

Q4 GDP was revised up from +4.1% to +4.3%. This was the third and final update for Q4. The economy as a whole has now recovered 76.5% of the COVID-19 losses on an inflation-adjusted basis. Current estimates for Q1 GDP are around +5%. If actual results are +5% growth in Q1, the economy would have recovered 90% of the COVID-19 recession.

2020 is now officially in the books. 2020 real GDP declined -3.5%, the worst year since 1946 (-11.6%). But it's all about looking ahead to a brighter future.

The third and final quarterly GDP update includes the Q4 quarterly corporate profits data. Corporate profits declined -1.4% in Q4 from the record high in Q3. And profits are down -0.7% below Q4 2019. A solid result, considering one of the worst years for the economy. Based on S&P 500 earnings projections, I expect corporate profits to continue to improve going forward.

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