2 months ago • 2 mins
Here’s a chart that actually might surprise you. Despite all the highs and lows and wild developments in US financial markets and the economy this year, 2024 profit expectations held remarkably static. Analysts are projecting that S&P 500 companies will earn around $247 per share in 2024 – a figure that’s barely changed since the start of May. And that’s despite the fact that the index has risen 14% since then, as the market overcame fears about a banking crisis, ever-rising inflation, higher borrowing costs, and a seemingly imminent recession. Through all of that, analysts’ 2024 earnings projections stuck to a tight range, drifting between $243 and $248 a share.
A lot of those risks have now receded, sure, but as stocks rallied and those earnings estimates held steady, valuations went from reasonable to fairly rich. The S&P 500 is currently trading at 19.6x projected earnings – that’s 24% above its 20-year average. The Nasdaq 100, which is of course full of tech stocks with lofty valuations, is even more expensive: it’s currently priced at about 25x projected profits. That’s down from its peak of 30x in 2020, but it’s well above the average of 19x over the past two decades.
The good news is that next year’s profit expectations look more realistic than they did back in May. Companies posted decent results last quarter and the Federal Reserve is talking more seriously about a soft landing (that dream scenario where the economy slows enough to tame inflation, but remains strong enough to avoid a recession). Slowing economic growth has already led to an earnings decline that was long but relatively shallow for S&P 500 companies, with a 13% peak-to-trough contraction in trailing 12-month earnings per share in 2022 and 2023. However, if current analyst predictions hold true, earnings could well rebound with an anticipated 11% growth in 2024.
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