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For The First Time Since Lehman, Full Year S&P 500 Revenues Are Projected To Decline
A lot can change in less than two months apparently: it was just on December 31, 2014 when deep in the crude-oil rout the sell-side community was still predicting solid EPS growth of 8.20%. Just 7 weeks later, on February 20, consensus opinion as summarized by Factset, now anticipates EPS to collapse by two-thirds, as S&P 500 earnings (non-GAAP) are now expected to rise by just a fraction, a tiny 2.80%, in all of 2015 (and decline on a non-GAAP basis, but for now nobody cares about actual numbers for the time being).
And while the chart above gets undeserved credit from extensive "one-time" and various other non-GAAP adjustments, not to mention projections for even more margin expansion, i.e., mass layoffs which will continue to be masked by the BLS in seasonal-adjustments until one day the massive retroactive BLS revisions confirm that there was actually no job growth in 2015 and probably in 2014, it is the revenue growth that has finally turned a historic corner, because while on the last day of 2014 there was still some hope that S&P500 sales will still grow even if at a very muted pace, as of Friday - for the first time since Lehman - full year revenue growth is now projected to turn negative!
As noted above, this is the first negative revenue inversion since Lehman:
It gets worse: while we showed yesterday that the median EV/EBITDA multiple of the S&P500, having just crossed 11.0x is the highest in history, now Factset observes that even on a simple P/E basis, the market is more overbought than during the entire housing bubble period of 2005-2007, and at 17.1x, forward PEs are the highest since 2004.
The forward 12-month P/E ratio for the S&P 500 now stands at 17.1, based on yesterday’s closing price
(2097.45) and forward 12-month EPS estimate ($122.72). Given the high values driving the “P” in the P/E ratio, how does this 17.1 P/E ratio compare to historical averages? What is driving the increase in the P/E ratio? The current forward 12-month P/E ratio of 17.1 is now well above the three most recent historical averages: 5-year (13.6), 10-year (14.1), and 15-year (16.0).
In fact, this week marked the first time the forward 12-month P/E has been equal to (or above) 17.1 since December 31, 2004. On that date, the closing price of the S&P 500 was 1211.92 and the forward 12-month EPS estimate was $70.79.
Back on December 31, the forward 12-month P/E ratio was 16.2. Since this date, the price of the S&P 500 has increased by 1.9% (to 2097.45 from 2058.90), while the forward 12-month EPS estimate has decreased by 3.3% (to $122.72 from $126.90). Thus, both the increase in the “P” and the drop in the “E” have driven the increase in the P/E ratio to 17.1 today from 16.2 at the start of the first quarter.
It is interesting to note that despite the decline in the forward 12-month EPS estimate for the S&P 500 over the past few weeks, analysts are still projecting record-level EPS for the S&P 500 in the 2nd half of 2015 (please see page 25 for more details on EPS estimates). If not, the forward 12-month P/E ratio would be even higher than 17.1.
Once we approach the second half of the year, and there is no revenue projection, expect full-year EPS forecasts to crumble, pushing the P/E multiple as high as 20x, both on a GAAP and non-GAAP basis at which point drinks are on David Tepper.
Meanwhile the market... well, just don't show this chart to the stock-trading desk on the 9th floor of Liberty 33.
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Why does this matter?
BULLISH!!!
Positive earnings are so last year.
Negative is the new positive.
I think S&P became a money laundering vehicle.
EDIT: I am not sure when.
It doesn't: fundamentals are a barbaric relic.
Got a job?
This should be BULLISH then!
Nirp contortions
Every video clip I've watched of Marc Faber over last 3 months he goes on record of saying that S&P will close lower this year. Drum roll.......
I am told the only way I can retire is to buy index funds and get 8% annuaized returns forever...So regardless of price or valuation i need to buy and i will always get at least 8% returns in the stock market for every dollar i put in!!! My financial advisor tells me so!
Standard and POOR seems about right..how ironic
I can't think of a clearer BTFATH signal than this. Dow 20000 by April!
Facts! you can't handle the facts.
Clear message: QE4 is on its way.
Did they bring back Mark-to-Market? Fraudulent accounting= fraudulent market.
Everything is non-GAAP. Comparisons to historical data mean nothing. In reality the forward P/E is as likely to be 170 as 17.1.
Why is this forward looking statement written in fucking crayon?
Stand by for 3000.
if you're getting 5% in cash you might not want to pay 17 x earnings
if you're paying to hold cash instead it's probably easier to convince yourself 17 x earnings isn't a bad deal
until interest rates rise this market marches up
(if) when they rise all bets are off
my gut tells me you don't get rich paying 17 x earnings in year 7 of a bull market
but then i've been wrong since the thanksgiving (obama election) bottom 26 odd months ago
anyone remember what the s&p dow levels were when they crossed the buffet sell line as a excessive % of gdp, can't recall what his number was
I just donno why yall worry about that darn satl'n peppa?
It all belongs to the fed anyway!
A decline will never be reported. Just lie. Everything is wonderful.