Welcome to the latest episode of Reading The Markets with Mike Kramer and Jane King, recorded at the Nasdaq market site in Times Square. We just finished up the first quarter of 2017 and the earnings throughout have been excellent this quarter, except retail, which has been getting hammered because Amazon ($AMZN) is just eating their lunch. When you look at the actual numbers, the latest statistics through the first week of May showed about 400 or so companies had reported earnings and nearly 74 percent of them had beaten their estimates. Even revenue growth has been here this quarter, which is up six or seven percent on the S&P 500 ($SPY) this year versus last year. The latest earnings imply the markets might have further to go in 2017, even though we’ve been on this incredible run. When you start looking at the S&P 500 ($SPX), and you start thinking about earnings going forward, we see estimates around $132 a share in 2017, and $140 or so in 2018. This gives us an S&P 500 trading at 16, 17, 18 times forward. All these people they’re looking at these trailing -twelve month PE multiples and they’re seeing higher numbers, but they need to remember we’re coming out of a massive earnings recession. The trailing numbers aren’t indicative of what the future growth is, and the market, of course, is always we’re looking forward.
The surprises of the quarter or at least the most exciting development has been a trend a global recovery in earnings. A perfect example is Unilever ($UL, $UN), this quarter showed they not only had pricing improvement but volume improvements as well. Unilever makes all the basics, all the necessities, and personal hygiene products. In the emerging markets, they had five percent pricing increases, but they also had two to three percent volume increases so they’re raising prices and they’re still selling more goods. This paints a picture of an economy that’s pretty strong out there.
Look at for projections in the S&P 500 we come to a year-end target range of 2500 to 2550 by December. Which still only gets you to an S&P 500 to around to 18 times earnings. That is it for the latest episode of Reading The Markets with Mike and Jane.
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