S&P 500 Earnings Update And Weekly Review Of Economic Data

The forward earnings per share (EPS) for all S&P 500 companies combined declined last week from $161.17 to $159.01. This is the biggest one week EPS decline since the week of May 15th, but not entirely unusual. I expect a fairly large increase in the forward EPS when we roll into the new quarter/year, but this will need to be monitored.

The S&P 500 index declined -0.17% last week. The price decline was smaller than the decline in the EPS, therefore the price to earnings ratio increased from 23x to 23.3x, which is well above the 10-year average.

The earnings yield for the S&P 500 decreased from 4.34% to 4.29%, while the yield on the 10 year Treasury bond declined from 0.948% to 0.926%. Valuation compared to fixed income remains very positive.

Put a different way, the above chart shows the earnings yield minus the 10-year treasury rate (equity risk premium) over the last 10+ years. Despite being near all-time highs, the valuation compared to interest rates are even more attractive than it was 10 years ago (when the S&P 500 was trading at 1100, compared to 3700 today).

Economic Data Review


We got our final read on Q3 GDP. The economy grew a record 33.4% for the 3rd quarter, now $21.17 trillion. But the damage was done in Q2 (-31.4%), so the gains are coming off a lower base. The economy remains below the pre-COVID high point but has now recovered about 74% of the losses.

Current estimates for Q4 GDP growth are around 11%. If those estimates become reality, that would make a new all-time high for GDP. This would make 2020 nominal GDP growth positive after all the pandemic scare. That would be quite remarkable. Real GDP growth would still be negative for the year since real GDP growth takes the nominal GDP growth rate and subtracts the rate of inflation. We’ll have to wait and see how it plays out.

Consumer Confidence

Consumer confidence disappointed, coming in at 88.6, which is down -7.8% from last month and almost near the low of 86.6 that came in the immediate aftermath of the COVID outbreak. There were a few silver linings:

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