SP 500 Earnings Replace: Earnings Yield Hits A 2022 Excessive

October 1, 2022

S&P 500 Exchange Traded Fund Investment Asset Stock Market Money

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As a result of Nike (NKE) and Micron (MU) reported Thursday, September twenty ninth, after the market shut, these firms and the following earnings and income revisions will not be within the present IBES information by Refinitiv reviews till subsequent week, so the information proven is as of Thursday, September twenty ninth and any impression on the mixture estimates gained’t be recognized till early subsequent week.

SP 500 information

  • The ahead 4-quarter estimate (FFQE) declined $0.25 this week to $230.43 from final week’s $230.68. Of the final 14 weeks, since July 1 ’22, the SP 500’s FFQE has declined sequentially 13 of these 14 weeks.
  • The PE ratio as of 9/30/22 was 15.5x versus 16x final week, the identical as when the quarter began.
  • The SP 500 earnings yield ended this week at 6.43%, transferring one foundation level forward of 2022’s excessive EY of 6.42% as of June 17, ’22.
  • Since July 1 ’22, the FFQE has declined about $10 in whole from $240 and alter to $230 and alter as of 9/30/22.
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The SP 500 earnings yield didn’t actually get above 5% till the 2nd week of January ’22 and it has stayed above since. In December ’18, the SP 500 earnings yield hit 7% simply earlier than Powell began making dovish feedback about financial coverage within the final week of December ’18 after which early ’19. In that 4th quarter of 2018, the SP 500 PE slid from 17x to 14x the ahead 4-quarter estimate, and the estimate itself remained secure at $168 per share from late September ’18 by way of the final week of December ’18.

The inventory market in 2022 has been all about “PE compression”, because the SP 500 has deteriorated at a sooner charge than SP 500 earnings.

Market Cap vs Earnings Weight: Prime 10 Names within the SP 500

  • Apple (AAPL): 7% market cap weight
  • Microsoft (MSFT): 5.77% market cap weight
  • Amazon (AMZN): 3.32% market cap weight
  • Tesla (TSLA): 2.33% market cap weight
  • Alphabet (GOOG, GOOGL): 3.61% market cap weight
  • Berkshire (BRK.A, BRK.B): 1.58% market cap weight
  • United Well being (OTCPK:UEEC): 1.55% market cap weight
  • Johnson & Johnson (JNJ): 1.41% market cap weight
  • Exxon-Mobil (XOM): 1.20% market cap weight

Prime 10 Earnings weights

  • Apple: 4.2% earnings weight
  • Microsoft: 3.7% earnings weight
  • Exxon Mobil: 3.1% earnings weight
  • Chevron (CVX): 1.8% earnings weight
  • JP Morgan (JPM): 1.8% earnings weight
  • Pfizer (PFE): 1.8% earnings weight
  • Alphabet: 1.6% earnings weight
  • Johnson & Johnson: 1.4%
  • Abbvie (ABBV): 1.4% “
  • Berkshire Hathaway: 1.3% “

(Earnings weight element courtesy of Refinitiv.)

The Prime 10 market cap names comprise 27% – 28% of the SP 500 index as of Thursday, September 29, 2022, whereas the highest 10 earnings weights comprise about 20% of the S&P 500 index.

Abstract / conclusion

An extended-time buddy reached out the previous week and requested me about SP 500 earnings and what the following few months seems to be like (I laughed and advised him, “Why not ask me one thing troublesome?”). He’s a long-time bond-fund supervisor primarily of intermediate high-grade and high-yield company bonds, and his pondering was that this leg down within the SP 500 since January third, 2022, was all interest-rate pushed, whereas the following leg down for the SP 500 would in all probability be earnings pushed, and I couldn’t disagree.

The SP 500 on the peak in March 2000 noticed “expertise” as 33% of the SP 500’s market cap, whereas the commensurate “earnings weight” of that focus was simply 13%, whereas right this moment, solely Tesla may need the most important disparity between its market cap weight and earnings weight inside the SP 500. That’s one massive distinction right this moment.

The opposite disparity that’s changing into clearer is “US vs non-US”.

Take a look at FedEx (FDX) and Nike (NKE), each monumental international manufacturers with wide-reaching distribution and provide networks and each shares are down 50% or extra on earnings. A contributing issue to non-US shares within the subsequent quarter would be the unimaginable energy within the US greenback and what meaning by way of “translation” for income and earnings.

Extra work must be carried out on the sectors however two sectors with heavy US concentrations that might have little abroad publicity are regional US banks and utilities, in addition to home REITs.

That’s too broad a brush with too little element but it surely offers readers some concepts.

Frankly, I’m frightened about SP 500 earnings, however so long as the highest 10 market cap weights don’t disappoint, the SP 500 will in all probability be effective.

On the final day of the quarter right this moment, September 30, 2022, the SP 500 lastly cracked its June sixteenth low of three,636 and closed at 3,584.62. The PCE information this morning was nonetheless stronger-than-expected, and yesterday’s jobless claims quantity fell again beneath 200k. Each point out energy the place buyers want to see slowing.

The technical setup of the inventory market acquired worse right this moment, which isn’t good.

Take all the above with a wholesome dose of salt. IBES information by Refinitiv is the supply of all earnings information. None of this can be a advice to purchase, maintain or promote something. Previous efficiency is not any assure of future outcomes. Capital markets can and do change shortly for higher and worse.

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Editor’s Be aware: The abstract bullets for this text had been chosen by Searching for Alpha editors.