S&P 500 Earnings Update & Economic Data Review - Saturday, April 10

The earnings per share (EPS) for all S&P 500 companies combined increased 4.4% this week, now at $183.33. This is a new all-time high and far surpasses the prior high of $176.85 in January 2020. The forward EPS has now increased 15.3% year to date.

4.2% of S&P 500 companies have now reported Q1 earnings. 81% of those companies have beaten estimates, and by a combined 5.9% above expectations. (I/B/E/S data from Refinitiv)

The S&P 500 increased +2.71% this week, for another all time high.

The price to earnings (PE) ratio ticked down to 22.5, since the increase in the EPS (+4.4%) was greater than the increase in price (+2.71%).

The earnings yield is now 4.44%, while the 10 year treasury yield is 1.67%. The equity risk premium (earnings yield minus treasury yield) is now 2.77%. Valuation in comparison to fixed income remains favorable for stocks.

Economic data review

The ISM Services PMI came in at 63.7, an all-time high, well above expectations and February’s 55.3. All 18 services industries reported growth. Some key comments below:

“Respondents’ comments indicate that the lifting of coronavirus (COVID-19) pandemic-related restrictions has released pent-up demand for many of their respective companies’ services. Production-capacity constraints, material shortages, weather and challenges in logistics and human resources continue to cause supply chain disruption.”

“The past relationship between the Services PMI® and the overall economy indicates that the Services PMI® for March (63.7 percent) corresponds to a 5.1-percent increase in real gross domestic product (GDP) on an annualized basis.”

My weighted ISM – which combines the two based upon the approximate size the services & manufacturing sectors comprise of todays economy – is 64.0 for March, an all-time high. March’s number translates to an approximate annualized real GDP growth rate of 5.375%.

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