S&P 500 Earnings Update And Economic Data Review - Sunday, March 21

The earnings per share (EPS) for all S&P 500 companies combined increased to $175.60 this week. This represents a gain of 0.39% for the week, and a gain of 10.43% for the year to date. The forward EPS is less than 1% away from all-time highs and I expect a substantial increase when we roll into the new quarter.

The S&P 500 declined 0.77% this week.

The price to earnings (PE) ratio declined to 22.3.

The earnings yield on the S&P 500 is now 4.49%, while the 10 year treasury bond rate has increased for the 8th straight week in a row, now at 1.73%. The valuation gap is narrowing, with the equity risk premium falling to 2.76%, but still favoring stocks convincingly.

Economic data review

Total retail sales for February came in at $561.7 billion, a -3.0% decline for the month. Although January’s number was revised higher, from +5.3% to a +7.6% monthly gain. Total retail sales are +6.27% higher than they were last year, and +4.34% year to date.

Industrial production declined -2.2% in February, attributed mainly to the severe weather that impacted the south central region, and the global semiconductor shortage. Industrial production has increased 15% off the April 2020 lows, but has only recovered about 74% of the COVID decline (down -4.3% from this time last year).

The Conference Board’s leading economic indicators (LEI) index increased 0.2% in February, but still down 1.4% on an annual basis.

Key points (emphasis mine):

“Indeed, the acceleration of the vaccination campaign and a new round of large fiscal supports are not yet fully reflected in the LEI. With those developments, The Conference Board now expects the pace of growth to improve even further this year, with the U.S. economy expanding by 5.5 percent in 2021.”

“Despite widespread improvements among the leading indicators, some measures—including weekly hours in manufacturing, permits for residential housing, and consumers’ outlook for business and economic conditions—showed signs of weakness. Bad weather and assorted supply-chain disruptions may have impacted these particular leading indicators in February, and the effects may prove transitory.

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