Unexpectedly Intriguing!
November 20, 2019

Every three months, we take a snapshot of the expectations for future earnings in the S&P 500 at approximately the midpoint of the current quarter, shortly after most U.S. firms have announced their previous quarter's earnings.

The earnings outlook for the S&P 500 has continued to deteriorate since our Summer 2019 edition. As of data from 11 November 2019, Standard & Poor's earnings data indicates a new earnings recession has begun, with the trailing twelve month total of quarterly earnings for 2019-Q3 dropping below the level recorded for 2019-Q2.

Forecasts for S&P 500 Trailing Twelve Month Earnings per Share, November 2015-December 2020, Snapshot on 11 November 2019

S&P is currently forecasting the new earnings recession will last just a quarter, but as you can see in the chart above, S&P's earnings forecasts have a history of being overly optimistic and being subsequently revised downward.

You can see that track record of excessive optimism in the chart above, which shows the evolution of earnings through the previous earnings recession for the S&P 500 in the period from 2014-Q3 to 2017-Q2. Here, from September 2014 to September 2016, the earnings projections always looked like they were about to turn around, but either deepened or extended to draw out the length of the earnings recession instead. It wasn't until December 2016 that a recovery really began to gain traction, where it took an additional two quarters for the index to recover to the level of trailing year earnings it had achieved prior the beginning of that earnings recession.

Catching up on other changes in the updated outlook for earnings, S&P's projection for the S&P 500's trailing twelve month earnings in December 2019 has declined from $146.63 per share to $141.63. Looking further forward, out to December 2020, S&P's projections of S&P 500 earnings in 2020 has dipped by a similar amount, from the $166.51 recorded three months ago to $161.95 as of 11 November 2019.

Data Source

Silverblatt, Howard. Standard & Poor. S&P 500 Earnings and Estimates. [Excel Spreadsheet]. 11 November 2019. Accessed 19 November 2019.

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