S&P 500 Earnings Update & Economic Data Review - Saturday, Feb. 20

The earnings per share (EPS) for all S&P 500 companies combined increased again this week to $173.68. The forward EPS has now increased 9.22% since January 1st.

80% of S&P 500 companies have reported Q4 results. 82% of companies have beat expectations and reported earnings a combined 17% above expectations. (I/B/E/S data from Refinitiv)

The S&P 500 declined -0.71% for the holiday shortened week.

The increase in EPS plus the decline in the S&P 500 brought the price to earnings (PE) ratio down slightly to 22.5.

The 10 year treasury bond rate continues to rally above 1%. The above chart shows the confluence of prior low points in 2012, 2016, and 2019. The confluence zone comes in between 1.366% and 1.429%, which could become resistance at least in the near term.

The earnings yield on the S&P 500 is now 4.45%, while the 10 year treasury bond rate rose to 1.345%.

The 10 year treasury rate increased more than the S&P 500 earnings yield, so the equity risk premium (earnings yield minus 10 year treasury rate) narrowed to 3.101%.

Economic data review

After three straight months of declines, January retail sales handily beat expectations with an increase of +5.3%, a new all time high. Solid growth across all categories, with even bars & restaurant sales showing an increase of +6.9%. Encouraging news.

At $568 billion, this represents an increase of 7.43% year over year. You have to go back to September 2011 to see a higher annualized growth rate. Clearly, stimulus measures are having an effect.

Industrial production increased 0.9% in January. It’s now recovered 88% of the losses during March and April, and 82.5% of the decline from the December 2018 all time high. The index is still down -1.83% on a year over year basis, but well off the -16% year over year decline in April.

The Producer Price Index rose 1.3% in January. It’s the single biggest monthly increase since the data set inception date of December 2009. Input costs are rising (the first sign of inflation), companies can either accept lower profit margins or pass the costs onto consumers. One month doesn’t make a trend, but its important to watch and it piggybacks off my key theme for later this year (inflation).

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