We have been hearing rumblings over the past few months about “peak earnings”, the idea that corporate earnings have been so good over the past few quarters that going forward they must disappoint and go down. This has a certain poetic logic to it, and also a healthy dose of cynicism. However, we do not buy or sell based on projections. Through Friday 10/19/2018, 17% of S&P 500 companies reported earnings. According to data provider FactSet, 80% reported positive earnings per share (EPS) surprises with 64% reporting positive sales surprises.
It is interesting that with the drop in price level over the past few weeks in the stock market that the 12-month forward price/earnings (P/E) ratio for the S&P 500 currently stands at 15.9. This is now below the 5-year average of 16.3 according to FactSet.
This coming week is going to be busy with 158 S&P 500 companies releasing their latest financial reports. We plan on being rather busy parsing through the onslaught of data coming our way, and we expect that we will have a better picture next week where we stand from a “peak earnings” perspective.