S&P 500 Earnings Weekly Update: Averaging Expected Growth Rates For 2020 And 2021

One thing that’s been tracked for a while but might be somewhat useful in this type of market environment where everyone is looking for some “pandemic allegory” is just averaging expected 2020 and 2021 full-year S&P 500 growth rates.

Here is what the progression looks like:

• 4/24/20: +4% average expected growth rate of S&P 500 earnings for years 2020 and 2021
• 4/17/20: +5%
• 4/10/20: +5%
• 4/3/20: +6%
• 3/31/20: +8%
• 3/27/20: +7%
• 3/20/20: +8%
• 3/13/20: +9%
• 3/6/20: +9%
• 2/29/20: +10%
• 2/21/20: +10%
• 2/14/20: +10%

Source: Actual EPS estimate data courtesy of IBES by Refinitiv

The trend is not great. Can’t say I’m encouraged by this.

Tracking “rate of change”

This week’s sequential rate of decline in the bottom-up 2020 S&P 500 estimate was the lowest rate of change since early April, which is a small, positive sign.

However, I wanted to show readers 2020 and 2021 S&P 500 estimates and the rates of change since I don’t think it would be good for the S&P 500 if 2021’s S&P 500 dollar estimate fell below the 2019 “actual” S&P 500 EPS of $162.93.

Looking at S&P 500 EPS dollar estimates

Here are the current estimates:

• 2022 – $190.85
• 2021 – $170.04 (est) – currently expecting +26% growth next calendar year
• 2020 – $134.92 (est) – currently expecting a decline in 2020 of 17% y/y
• 2019 – $162.93 (actual) 1 % y/y growth

Summary/conclusion: Navel-gazing this earnings data from IBES by Refinitiv can drive you nuts, but during this correction, the question remains, given the uncertainty of it all from a vaccine perspective, an economic perspective and an earnings perspective, when do the forward revisions start to slow at a decelerating rate (or in other words stabilize), and how much more stress does the S&P 500 estimate have to endure?

I would not want to see the 2021 S&P 500 estimate – currently estimated at $170.04 – to fall below 2019’s actual EPS of $162.93.

Reviewing prior bear markets, the year 2000 peak S&P 500 actual EPS print of $55.12 wasn’t exceeded until 2003’s $55.44 and only by a very thin margin.

2006’s peak S&P 500 actual EPS print of $88.18 wasn’t exceeded until 2011’s $97.82. (2010 was close at $85.12 but fell a little short).

The 2021 estimate, which will be affected by the November ’20 presidential election, will hopefully remain above 2019’s actual EPS of $162 per share.

This is all very fluid – take all commentary and “expectation” with substantial skepticism since it could change daily. The estimates will change daily too.

Rates of change are very important – decelerating declines are very good news. Let’s give the Tech sector and the “Big 5” a chance to report earnings next week.

Thank for reading.

Original post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.