YWR: Killer Charts
Disclosure: Personal views only. Not investment recommendations.
We’ll do a quick health check on the S&P 500 then move on to something more interesting.
We are early into Q1. A few banks have beaten numbers, but the EPS trend remains gradual decline.
In the chart below you can see investors are expecting Q1 2023 to be the earnings low point. It’s possible. Of the 30 companies which have reported Q1 so far they have on average beaten estimates. So the hope is the estimate decline will stop, but we will see. Still 470 companies to report.
The broader index is following the forward earnings trend. If the S&P 500 can deliver a 2024 EPS in the $240 range, maybe it can make some small gains. The darker line below would creep up from $230 to $240. Again assuming the $240 estimate doesn’t slip further. This also assumes the forward P/E remains at 18x and investors don’t questions whether a market which isn’t growing and where you can earn 4.5% on your cash deserves a lower P/E than in the past. Overall, it’s a relatively precarious situation. Estimates trending down on an expensive market.
Sentiment is on the low side. This is a small positive.
The big flows from bank deposits into money market funds has brought $180 billion of cash into people’s brokerage accounts. Unlike in the past this is not being driven by panic selling of stocks, but rather banks carefully increasing the spreads they earn on savings accounts and happy to let a few hundred billion $ out the door in return for the trillions of depositors who are lazy and happy to earn just 1.8%.
But all this money going into money market funds sets up an interesting possibility. The money is out of the bank and now in a stock market account where it is 1 click away from going into a trading idea.
Where might this $3 trillion in money market funds go when investors are sitting in front of their screens with a coffee going looking for ideas and bored of their 4.75% yield…
Maybe there is a big market where valuations are at rock bottom, sentiment and positioning are low and estimate revisions are starting to turn positive.