EPS, PE, GDP, S&P – Monday Morning Market Memo – April 29, 2019

Good morning,

We are in the heart of earnings season and EPS (earnings per share) are coming in better-than-expected so far. With 46% of the companies in the S&P 500 having already reported results for the first quarter of 2019, 77% have reported earnings above estimates, which is above the five-year average, according to data from FactSet. Keep in mind however, that expectations were lowered, so it has been easier for companies to clear the lowered bar. Nevertheless, a “worst case” earnings scenario is not playing out, so there is a sense of relief amongst investors. Looking at the overall market valuation, the forward 12-month PE (Price/Earnings) ratio is 16.8. The historic average is approximately 15, so the market does not look cheaply or excessively valued based on this measure.

More surprising than earnings surpassing expectations, is the initial read of GDP. The Department of Commerce reported Gross Domestic Product, a broad measure of economic activity which is the value of goods and services produced in the United States, came in at 3.2%, versus consensus estimates of approximately 2.5%. This is the best growth for the start of a year since 2015, and it helps alleviate concerns over slowing global growth. So, earnings and economic growth numbers ahead of forecasts…..

…..put it all together and the S&P 500 gained 1.2% last week to finish at a record closing high of 2,939.88! We’ll see if the market can continue with its forward momentum in the busy week ahead. Earnings will continue to flow in as over 150 companies are scheduled to report – including Alphabet, McDonald’s, MasterCard, Merck, Pfizer, CVS Health, and Berkshire Hathaway. Also, the Fed announces its monetary policy decision on Wednesday. Although it is expected to keep rates unchanged, their commentary could be market moving, especially given the stronger economic growth and how that relates to their view on interest rates. The week wraps up on Friday with the April Jobs Report – consensus estimates are for the unemployment rate to come in at 3.8% and for nonfarm payroll gains to be around 175,000.

All the best,

Southport Station Financial Management, LLC