S&P 500 Earnings: Don’t Ignore 2025 Estimates

whyframestudio/iStock via Getty Images This week, the blog is starting off with what I call the “spot curve” of the forward 4-quarter estimates of the S&P 500. (What does the forward 4-quarter estimate tell us 1, 2, 3 and 4 quarters from now?) In other words, if we look at the “forward 4-quarter estimate” today, and then add one future quarter as one quarter falls off, what does the rate of change tell us, if anything? Readers, in the table above, you’ll see that forward revisions continue to be positive across all time trends, i.e., sequential, 4-week rate of change, and then this week for the first time, the 12-week rate of change for the quarterly estimates that were added (by LSEG) for 2025, around April 1 ’24. What’s abnormal with the above pattern is that typically we see negative revisions for the sequential rates of change at this time of the quarter as analysts pull in their estimates and get more conservative as the second quarter ends and until second quarter earnings start being reported around July 10th-12th. Instead, as the table shows, we see consistently steady, upward revisions. A number of brokerage firms and Wall Street strategists have raised their S&P 500 targets for year-end 2024. S&P 500 earnings estimate revisions could be one reason why. This is another table that is updated weekly from LSEG data: note the 2015 S&P 500 EPS and revenue data. I’m starting to wonder if these estimates are starting to factor in a Presidential election result. Without being political, let’s face it, a Republican victory similar to 2016 is usually “very pro-growth” for the US economy, meaning policies are typically passed or enacted that support above-trend GDP growth, low unemployment and low inflation. This is typically pretty healthy for the stock market(s) and not so conducive for higher bond prices. Don’t assume this yet with the 2025 data though, but the numbers do at some point start to discount actual 2025 EPS and revenue for the S&P 500. Readers might think we are still too far out from 2025 for the estimates to be realistic, but readers would be surprised. Personally, I’ll pay much more attention to 2025 estimates as we roll through July ’24 earnings for Q2 ’24 and see how the numbers change. We’ll see what the revisions look like as we move through the 3rd and 4th quarters. S&P 500 data The S&P 500’s forward 4-quarter estimate this week is $253.54, versus last weeks $253.42 and March 31’s $242.94. I just realized the forward 4-quarter estimate has risen $11 in the last 10 weeks. If we assume it’s the next quarter (i.e., July ’24 through June ’25) already, the forward estimate (one quarter forward, see the top table) is $262.30, and that’s a $9 expected increase, but much depends on actual Q2 ’24 results. The P/E ratio on the forward estimate is 21.55x, versus 21.6x as of 3/31/24. What’s interesting about tracking the P/E versus the forward estimate is that the first 90 days of the year and the nice rally in the S&P 500 in Q1 ’24 was all “P/E expansion”, but the second-quarter rally to new all-time highs after the April correction has been all EPS growth. The S&P 500 P/E is almost identical to where it was on March 31 ’24. (Navel gazing, I know. This is my life.) Russell 2000 data: Faces easier compares for the rest of 2024 What might be telling for readers is that 2023 was not great for Russell 2000 earnings, so 2024, particularly the back half of the year, will see very favorable “compares” against the same quarter of 2023. It’s not the sole reason to have a position in IWM, but as its return versus the S&P 500 becomes more disparate and disconnected, don’t ignore the asset class. This blog will be putting out more info on the R2k from an earnings perspective, if for nothing else my own curiosity about the EPS and revenue patterns around the Russell 2000 asset class. Summary / conclusion FedEx (FDX), Micron (MU) and Nike (NKE) all report their May ’24 quarters this coming week, which will give us a good look at a cross-section of the US economy. Our Nike earnings preview was posted recently. While a few analysts expect Nike to benefit from the coming Summer Olympics, the bigger issue might be that the brand has gone stale and has become relatively dull. Our thesis is laid out in the preview. If consensus estimates don’t change, fiscal ’25 for Nike is expected to see another year of 1% revenue growth, which would be unprecedented. Nike remains about 50% below its November ’21 high, and we have bought the stock for clients, since it’s “uncorrelated” to this latest rally off the October ’22 lows. FedEx is similar. The transportation giant can benefit from AI, and FedEx is ultimately a higher-operating margin story. Micron too is seeing a sharp increase in the demand for DRAM (dynamic random access memory), as AI-enabled computers require more DRAM to operate efficiently. The stock is not owned for clients directly but through SMH. This comment will likely get me booed off stage, but it took 23 years for Micron to make a new all-time high, finally surpassing its late summer 2000 high of $99 (before falling back to single digits in 2002 and 2003) in March 2024. In the late 1990s, one hedge fund manager called it an “airline with a fab attached”, which was proven in 2002 and 2003, since returns on invested capital returned to negative numbers. Micron is capable of huge ROIC returns in good markets like today, but I wonder how much it’s truly changed since the nuclear winter for technology which followed after March 2000. Certainly, the NAND business helped diversify the Micron revenue stream, but DRAM is what’s driving the stock these days. None of this is advice or a recommendation, only an opinion. Past performance is no guarantee of future results. Investing can involve the loss of principal, even over short periods of time. All S&P 500 and Russell 2000 EPS and revenue data is sourced from LSEG. Readers should evaluate their comfort level with their portfolio and / or market volatility and adjust accordingly. Thanks for reading. Original Post Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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