S&P 500 Earnings And Market Update

The earnings per share (EPS) for all S&P 500 companies combined increased last week from $168.62 to $169.79.

About 13% of the S&P 500 have reported Q4 earnings now. 88% of those companies have beat estimates, by a combined rate of 23%. We still have a ways to go, but so far it's the 3rd straight quarter with an earnings beat rate above 80%.

In Q3, 84% of companies beat earnings expectations by a combined rate of 19.6%.

In Q2, 82.6% of companies beat earnings expectations by a combined rate of 22.9%. (I/B/E/S data from Refinitiv).

Not only are companies beating on earnings, but they are also raising forward guidance at a record pace.

The above chart shows annual earnings per share for all S&P 500 companies combined. While it took 4 years to recover from the 2007-2009 recession, it appears it will only take one year to recover from the 2020 COVID recession. Current earnings growth estimates are:

2021: +23.77%

2022: +16.12%

When we combine this against the backdrop of record low-interest rates, it shouldn’t come as a surprise that stocks are trading at all-time highs. With 117 companies reporting earnings next week (about 23% of the S&P 500), the heart of the earnings season is underway.

(Click on image to enlarge)

The S&P 500 increased 1.94% this week, another weekly closing high.

The index increased more than the EPS, causing the price to earnings (PE) ratio to tick up to 22.6x.

The S&P 500 earnings yield now stands at 4.42% (not to mention the 1.5% dividend yield) while the 10-year Treasury bond rate is 1.091%. The equity risk premium (earnings yield minus risk-free rate) is now 3.329%.

Economic Data review

No important data releases last week.

Key earnings reports

One key earnings report this week was from Netflix (NFLX). They actually missed on earnings (-8% y/y), but revenues beat and grew +22%. Subscriber numbers also beat expectations, Netflix now has over 200 million paid subscribers. Operating margins increased sharply from 8.46% to 14.4%

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