Forward Earnings Estimates Set a New Record High

Here’s Brian Gilmartin at Trinity Asset Management on a new record you’ve not yet heard about:

The “forward 4-quarter” earnings estimate for the SP 500 is as of April 5th, 2013, $115.25, a record high for the key benchmark.

The SP 500 is trading at 13.5(x) that forward estimate.

The earnings yield on the SP 500 is 7.42%.

The only negative we see is that – despite the record print in the forward estimate – the year-over-year growth in forward earnings has slowed to 5.19%, after peaking at 6.24% in late January ’13.

This is a yellow light in terms of the SP 500 and its ability to make new highs.

Gilmartin actually believes that as Q1 numbers begin trickling in, we’ll see that estimates were too low which will have the salutary effect of raising forward expectations even further for the forward 4 quarters.

My caveat I’d add here is that estimates going out more than a quarter are always somewhat ephemeral, any event can lead to corporations and consumers unexpectedly pulling in their horns en masse with little or no warning. Most consensus estimates that far out are essentially driven by a process of extrapolating recent trends, a statistical no-no when dealing with any data series as volatile and cyclical as corporate profits.

In addition, PE multiples have been expanding relentlessly since September of 2011 – they can as easily contract a bit thus negating any benefit from a bump higher in future earnings.

In other words, try not to base allocation decisions on any one data point, earnings expectations in particular.

Source:

SP 500 earnings update: Forward Earnings Estimate Now at All-time High Fundamentalis)