Divide between price and earnings widens in Q2 bounce back
Forward-earnings estimates may be pulling out of their 2020 nosedive as current forward estimates see the S&P 500 earning about $125 a share over the next 12 months. That number, however, is down 25% from estimates made a year ago, and down significantly from the $174 per-share estimate at the start of the year.
As earnings estimates fell, their relation to prices moved in the opposite direction. Current forward price-to-earnings ratios are at highs last seen during the dot-com bubble, as investors continue to bid up equities despite predicted earnings growth being in decline for much of the past 24 months.
The speculative nature of equity investing rarely gives way to a one-to-one, rational relationship between the two. The events of the first quarter certainly created plenty of opportunity to buy up cheap stocks waiting to spring back, but the current disparity between the related factors is difficult to ignore.
Additionally, the recent uptick in prices has pushed the forward dividend yield estimate for the S&P 500 down to 1.9%, down from its March 23 peak of 2.8%.