Long term growth estimates have spiked to the highest levels seen since the dot com boom

Long term growth estimates have spiked to the highest levels seen since the dot com boom

Here’s the second installment of the new “What the EPS?” series, where I look at earnings trends across sectors, countries, regions…. taking my usual top-down approach.  This week we look at earnings trends for the S&P500, specifically the path of forward earnings (up sharply), trailing earnings (up slowly), and estimates of long term future earnings growth (up sensationally*).

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Q1 hedge fund letters, conference, scoops etc, Also read Lear Capital

The key points on the S&P500 earnings outlook are:

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-Forward earnings growth is running hot (thanks to a spike in upward revisions driven by the tax cuts).

-Trailing earnings are plodding along, following a recovery from the 2015/16 earnings recession.

-Long term growth estimates have spiked to the highest levels seen since the dot com boom.

  1. Forward vs Trailing Earnings Growth:  This is an important chart for anyone who cares about the S&P500.  It shows the pace of growth in forward earnings (consensus estimates of the next 12 months earnings) vs trailing earnings (actual earnings over the last 12 months). The obvious standout is the surge in forward earnings (thanks to tax cuts), the less obvious standout is the earnings recession in 2015/16, and relatively lackluster pace of earnings growth thereafter - no signs of overheating there! (yet)

  1. Consensus Long Term Earnings Growth:  The next chart shows a rather interesting indicator I found as I sifted through the dozens of series on Thomson Reuters Datastream, termed "Weighted Average Long Term Growth Forecast".  As you might guess, this is the weighted average long term expected earnings growth rate for the S&P500.  The chart below provides an interesting, if cautionary, look at this indicator across time... compare and contrast the peak of the dot com boom vs the depths of the global financial crisis.  Something tells me this one might be more of a sentiment indicator than anything!  Still, what a turnaround from the lows of 2016.

EPS S&P 500 Earnings

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Article by Top Down Charts

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Topdown Charts: "chart driven macro insights" Based in Queenstown, New Zealand, Topdown Charts brings you independent research and analysis on global macro themes and trends. Topdown Charts covers multiple economies, markets, and asset classes with a distinct chart-driven focus. We are not bound by technical or fundamental dogma, and instead look to leverage any relevant factor to capture the theme. As such, here you will find some posts that are purely technical strategy, some that just cover economics and data, and some posts that use multiple inputs to tell the story and identify the opportunities. Callum Thomas Head of Research Callum is the founder of Topdown Charts. He previously worked in investment strategy and asset allocation at AMP Capital in the Multi-Asset division. Callum has a passion for global macro investing and has developed strong research and analytical expertise across economies and asset classes. Callum's approach is to utilise a blend of factors to inform the macro view.
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