Trends Of S&P500 Earnings Forecasts

S&P500 earnings trends and estimates are a notably important topic, for a variety of reasons, at this point in time.

FactSet publishes a report titled “Earnings Insight” that contains a variety of information including the trends and expectations of S&P500 earnings.

For reference purposes, here are two charts as seen in the “Earnings Insight” (pdf) report of March 15, 2019:

from page 23:

(click on charts to enlarge images)

S&P500 EPS forecasts 2019 & 2020

from page 24:

S&P500 EPS 2009-2020

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2832.94 as this post is written

Annual S&P500 EPS Forecasts For Years 2018, 2019 & 2020

As many are aware, Refinitiv publishes earnings estimates for the S&P500.  (My other posts concerning S&P earnings estimates can be found under the S&P500 Earnings tag)

The following estimates are from Exhibit 24 of the “S&P500 Earnings Scorecard” (pdf) of March 18, 2019, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts.  For reference, the Year 2014 value is $118.78/share, the Year 2015 value is $117.46, the Year 2016 value is $118.10/share, and the Year 2017 value is $132.00/share:

Year 2018 estimate:

$162.05/share

Year 2019 estimate:

$167.92/share

Year 2020 estimate:

$188.05/share

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2830.54 as this post is written

Standard & Poor’s S&P500 EPS Estimates 2018 2019 – March 14, 2019

As many are aware, Standard & Poor’s publishes earnings estimates for the S&P500.  (My posts concerning their estimates can be found under the S&P500 Earnings tag)

For reference purposes, the most current estimates are reflected below, and are as of March 14, 2019:

Year 2018 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $151.62/share

-From a “top down” perspective, operating earnings of N/A

-From a “bottom up” perspective, “as reported” earnings of $132.08/share

Year 2019 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $165.98/share

-From a “top down” perspective, operating earnings of N/A

-From a “bottom up” perspective, “as reported” earnings of $154.31/share

_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2829.29 as this post is written

Long-Term Charts Of The ECRI WLI & ECRI WLI, Gr. – March 15, 2019 Update

As I stated in my July 12, 2010 post (“ECRI WLI Growth History“):

For a variety of reasons, I am not as enamored with ECRI’s WLI and WLI Growth measures as many are.

However, I do think the measures are important and deserve close monitoring and scrutiny.

Below are three long-term charts, from the Doug Short site’s ECRI update post of March 15, 2019 titled “ECRI Weekly Leading Index Update:  All Measures Up Again.”  These charts are on a weekly basis through the March 15, 2019 release, indicating data through March 8, 2019.

Here is the ECRI WLI (defined at ECRI’s glossary):

ECRI WLI

This next chart depicts, on a long-term basis, the Year-over-Year change in the 4-week moving average of the WLI:

ECRI YoY of the Four-Week Moving Average

This last chart depicts, on a long-term basis, the WLI, Gr.:

ECRI WLI,Gr.

_________

I post various economic indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2823.59 as this post is written

Deflation Probabilities – March 14, 2019 Update

While I do not agree with the current readings of the measure – I think the measure dramatically understates the probability of deflation, as measured by the CPI – the Federal Reserve Bank of Atlanta maintains an interesting data series titled “Deflation Probabilities.”

As stated on the site:

Using estimates derived from Treasury Inflation-Protected Securities (TIPS) markets, described in a technical appendix, this weekly report provides two measures of the probability of consumer price index (CPI) deflation through 2023.

A chart shows the trends of the probabilities.  As one can see in the chart, the readings are volatile.

As for the current weekly reading, the March 14, 2019 update states the following:

The 2017–22 and 2018–23 deflation probabilities have remained at 0 percent through March 13 after falling from 5 percent to 0 percent on February 13 following the release of the Consumer Price Index (CPI) from the U.S. Bureau of Labor Statistics and the incorporation of revised seasonal adjustment factors for the CPI. These deflation probabilities, measuring the likelihoods of net declines in the consumer price index over the five-year periods starting in early 2017 and early 2018, are estimated from prices of the five-year Treasury Inflation-Protected Securities (TIPS) issued in April 2017 and April 2018 and the 10-year TIPS issued in July 2012 and July 2013.

_________

I post various economic indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2808.48 as this post is written

The March 2019 Wall Street Journal Economic Forecast Survey

The March 2019 Wall Street Journal Economic Forecast Survey was published on March 14, 2019.  The headline is “WSJ Survey: Economists Cut Forecasts For Jobs and Economic Growth in Early 2019.”

I found numerous items to be notable – although I don’t necessarily agree with them – both within the article and in the “Economist Q&A” section.

An excerpt:

A large majority of economists, 84.2%, said they saw a greater risk that the economy would grow more slowly than that it would grow more quickly over the next 12 months. When asked about the biggest downside risk to their forecasts, nearly half of respondents, 46.8%, mentioned trade policy or China.

As seen in the “Recession Probability” section, the average response as to the odds of another recession starting within the next 12 months was 24.51%. The individual estimates, of those who responded, ranged from 1% to 60%.  For reference, the average response in February’s survey was 24.53%.

As stated in the article, the survey’s respondents were 66 academic, financial and business economists.  Not every economist answered every question.  The survey was conducted March 8 – March 12, 2019.

The current average forecasts among economists polled include the following:

GDP:

full-year 2018:  3.0%

full-year 2019:  2.1%

full-year 2020:  1.7%

full-year 2021:  1.8%

Unemployment Rate:

December 2019: 3.7%

December 2020: 3.9%

December 2021: 4.2%

10-Year Treasury Yield:

December 2019: 2.93%

December 2020: 2.94%

December 2021: 2.99%

CPI:

December 2019:  2.10%

December 2020:  2.10%

December 2021:  2.10%

Crude Oil  ($ per bbl):

for 12/31/2019: $58.47

for 12/31/2020: $58.14

for 12/31/2021: $57.35

(note: I highlight this WSJ Economic Forecast survey each month; commentary on past surveys can be found under the “Economic Forecasts” category)

_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2807.82 as this post is written

Durable Goods New Orders – Long-Term Charts Through January 2019

Many people place emphasis on Durable Goods New Orders as a prominent economic indicator and/or leading economic indicator.

For reference, below are two charts depicting this measure.

First, from the St. Louis Fed site (FRED), a chart through January 2019, updated on March 13, 2019. This value is $255,273 ($ Millions):

(click on charts to enlarge images)

Second, here is the chart depicting this measure on a “Percentage Change from a Year Ago” basis, with a last value of 8.4%:

DGORDER Percent Change From Year Ago

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Manufacturers’ New Orders:  Durable Goods [DGORDER]; U.S. Department of Commerce: Census Bureau; accessed March 13, 2019;
http://research.stlouisfed.org/fred2/series/DGORDER

_________

I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2814.49 as this post is written

Chicago Fed National Financial Conditions Index (NFCI)

The St. Louis Fed’s Financial Stress Index (STLFSI) is one index that is supposed to measure stress in the financial system.  Its reading as of the March 7, 2019 update (reflecting data through March 1, 2019) is -1.216.

Of course, there are a variety of other measures and indices that are supposed to measure financial stress and other related issues, both from the Federal Reserve as well as from private sources.

Two other indices that I regularly monitor include the Chicago Fed National Financial Conditions Index (NFCI) as well as the Chicago Fed Adjusted National Financial Conditions Index (ANFCI).

Here are summary descriptions of each, as seen in FRED:

The National Financial Conditions Index (NFCI) measures risk, liquidity and leverage in money markets and debt and equity markets as well as in the traditional and “shadow” banking systems. Positive values of the NFCI indicate financial conditions that are tighter than average, while negative values indicate financial conditions that are looser than average.

The adjusted NFCI (ANFCI). This index isolates a component of financial conditions uncorrelated with economic conditions to provide an update on how financial conditions compare with current economic conditions.

For further information, please visit the Federal Reserve Bank of Chicago’s web site:

http://www.chicagofed.org/webpages/publications/nfci/index.cfm

Below are the most recently updated charts of the NFCI and ANFCI, respectively.

The NFCI chart below was last updated on March 13, 2019 incorporating data from January 8, 1971 through March 8, 2019, on a weekly basis.  The March 8 value is -.86:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed March 13, 2019: 
http://research.stlouisfed.org/fred2/series/NFCI

The ANFCI chart below was last updated on March 13, 2019 incorporating data from January 8, 1971 through March 8, 2019, on a weekly basis.  The March 8 value is -.69:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed March 13, 2019: 
http://research.stlouisfed.org/fred2/series/ANFCI

_________

I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2806.36 as this post is written

Recession Probability Models – March 2019

There are a variety of economic models that are supposed to predict the probabilities of recession.

While I don’t agree with the methodologies employed or probabilities of impending economic weakness as depicted by the following two models, I think the results of these models should be monitored.

Please note that each of these models is updated regularly, and the results of these – as well as other recession models – can fluctuate significantly.

The first is the “Yield Curve as a Leading Indicator” from the New York Federal Reserve.  I wrote a post concerning this measure on March 1, 2010, titled “The Yield Curve as a Leading Indicator.”

Currently (last updated March 11, 2019 using data through February) this “Yield Curve” model shows a 24.6188% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 23.6219% probability through January, and a chart going back to 1960 is seen at the “Probability Of U.S. Recession Predicted by Treasury Spread.” (pdf)

The second model is from Marcelle Chauvet and Jeremy Piger.  This model is described on the St. Louis Federal Reserve site (FRED) as follows:

Smoothed recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales. This model was originally developed in Chauvet, M., “An Economic Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching,” International Economic Review, 1998, 39, 969-996. (http://faculty.ucr.edu/~chauvet/ier.pdf)

Additional details and explanations can be seen on the “U.S. Recession Probabilities” page.

This model, last updated on March 1, 2019 currently shows a .28% probability using data through December.

Here is the FRED chart (last updated March 1, 2019):

Data Source:  Piger, Jeremy Max and Chauvet, Marcelle, Smoothed U.S. Recession Probabilities [RECPROUSM156N], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed March 13, 2019: 
http://research.stlouisfed.org/fred2/series/RECPROUSM156N

The two models featured above can be compared against measures seen in recent posts.  For instance, as seen in the February 7, 2019 post titled “The February 2019 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 24.53% probability of a U.S. recession within the next 12 months.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2791.52 as this post is written

Zillow Q1 2019 Home Price Expectations Survey – Summary & Comments

On March 12, 2019, the Zillow Q1 2019 Home Price Expectations Survey results were released.  This survey is done on a quarterly basis.

An excerpt from the press release:

Panelists are also asked each quarter to forecast the performance of U.S. home values. In Q1 2019, they on average predicted a 4.3 percent increase in U.S. home values this year, up from the 3.8 percent rate projected for 2019 just three months ago.

“The downturn in mortgage rates since our previous survey appears to have elevated price expectations for 2019,” said Pulsenomics® Founder Terry Loebs. “The longer-term outlook continues to be mixed and reflect uncertainties about housing supply, first-time homebuyer capacity, and other lingering market risks. For example, the most optimistic group of experts expects 28.3 percent cumulative home value appreciation through 2023, while our least optimistic group expects a cumulative gain of just 6.6 percent over the same period. In dollar terms, the difference between these scenarios is $6.3 trillion in national home equity value.”

Various Q1 2019 Zillow Home Price Expectations Survey charts are available, including that seen below:

Zillow U.S. Home Price Expectations

As one can see from the above chart, the average expectation is that the residential real estate market, as depicted by the U.S. Zillow Home Value Index, will continually climb.

The detail of the Q1 2019 Home Price Expectations Survey is interesting.  Of the 100+ survey respondents, only three (of the displayed responses) forecasts a cumulative price decrease through 2023, and none of those forecasts is for a double-digit percentage decline.   The largest decline is seen as a 7.08% cumulative price decrease through 2023.

The Median Cumulative Home Price Appreciation for years 2019-2023 is seen as 4.30%, 7.63%, 10.66%, 14.08%, and 17.62%, respectively.

For a variety of reasons, I continue to believe that even the most “bearish” of these forecasts (as seen in the above-referenced forecast) will prove far too optimistic in hindsight.  From a longer-term historical perspective, such a decline is very mild in light of the wild excesses that occurred over the “bubble” years.

I have written extensively about the residential real estate situation.  For a variety of reasons, it is exceedingly complex.  While many people continue to have an optimistic view regarding future residential real estate prices, in my opinion such a view is unsupported on an “all things considered” basis.  Furthermore, from these price levels there exists outsized potential for a price decline of severe magnitude, unfortunately.  I discussed this downside, based upon historical price activity, in the October 24, 2010 post titled “What’s Ahead For The Housing Market – A Look At The Charts.”

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2790.35 as this post is written