S&P 500 Earnings Update And Economic Data Review

The earnings per share (EPS) for all S&P 500 companies combined increased this week from $171.33 to 173.12. The forward EPS has now grown 8.87% since January 1st.

Companies continue to crush earnings expectations. 57% of the S&P 500 has now reported Q4 results. 84% of those companies have beat earnings estimates, and earnings have come in a combined 17.7% above those estimates. (I/B/E/S data from Refinitiv)

The S&P 500 index made a new high this week, gaining 4.65%.

The S&P 500 index increased more than the EPS growth for the week, pushing the price to earnings ratio up to 22.5, from 21.7.

The earnings yield now stands at 4.45%, while the 10 year treasury bond rate ticked up to 1.17%.

The equity risk premium (earnings yield minus treasury rate) now stands at 3.284%.

Economic data review

January’s ISM Manufacturing PMI came in at 58.7, missing expectations and down -1.8% from last month’s downwardly revised 60.5. Still it was a pretty solid report overall, with all 5 sub-indexes in growth territory, and the 8th straight month of expansion (any reading above 50 is expansionary). Historically, the manufacturing sector seems to pause around the 60 area.

Per the ISM report, “The manufacturing economy continued its recovery in January. Survey committee members reported that their companies and suppliers continue to operate in reconfigured factories, but absenteeism, short-term shutdowns to sanitize facilities and difficulties in returning and hiring workers are continuing to cause strains that limit manufacturing growth potential. However, panel sentiment remains optimistic (three positive comments for every cautious comment), similar to December levels.”

January’s services PMI came in 58.7, well above expectations and +1.7% above Decembers number (which was revised up from 57.2 to 57.7). January’s number is the highest reading since February 2019 (58.8). The employment index swung into expansion territory, from 48.7 to 55.2., a good sign going forward.

My weighted ISM (which accounts for the size the manufacturing and services sectors have in today’s economy), increased in January, from 58.4 to 58.7. This is the highest monthly reading since November 2018. The overall resilience of the economy continues to surprise to the upside, even though some sectors are clearly being effected more than others.

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