We Have Raised Our Full-Year S&P 500 Earnings and Return Forecasts

Fourth quarter earnings season has been outstanding, but as good as it has been, perhaps most impressive is the strong guidance corporate America has provided. That positive message has translated into a more than 7% increase in consensus S&P 500 Index earnings estimates for 2018, mostly due to the new tax law. The breadth of optimism is evident when tallying the number of S&P 500 companies that have raised annual guidance during reporting season. As shown in the chart, the number of companies raising guidance for this year is double the highest levels of the past decade for the same period.

In response to the strong corporate outlooks, we have raised our S&P 500 earnings forecast for 2018 and our S&P 500 year-end fair value target proportionately. According to LPL Chief Investment Strategist John Lynch, “We expect earnings to continue to get strong support from accelerating U.S. and global economic growth, a pickup in business spending, and strong manufacturing activity.” Our revised year-end S&P 500 fair value range of 2950–3000 represents a 19.5 price-to-earnings ratio on $152.50 in earnings per share in 2018. For more details on our upgraded earnings and stock market forecasts, as well as highlights of the strong fourth quarter results, see our latest Weekly Market Commentary due out later today.

 

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The PE ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher PE ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower PE ratio.

Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

This research material has been prepared by LPL Financial LLC.

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