S&P 500 Earnings Still Solid – 10-Yr Treasury Yield Highest Since Late November ’23

Looking at the weekly close of the 10-year US Treasury yield, the final yield print this week at 4.30% is the highest weekly closing yield since the 4.47% close in late November ’23.

Last Friday, March 8, ’24, the 10-year Treasury yield closed at 4.09%, so if the S&P 500 gets a little wobbly in here, you understand why.

Thanks in part to yields, the dollar had a strong week as measured by the UUP, up 0.75% in the last 5 trading days.

Interesting that the Nasdaq Composite has yet to take out its November ’21 all-time-high of 16,212, and remain above that key level. It’s closed above that key level in March ’24 a few times, but has since fallen back below the November ’21 high.

First, a little on credit spreads:

The above spreadsheet shows the credit spread progression since the S&P 500 bottom in early November ’23.

What surprised me this past week, is that high yield credit spreads tightened another 12 bps in the last 5 days alone.

This Bespoke note from March 7th, ’24 with the graphical support, notes the improvement in credit spreads.

While not always correlating to higher stock prices immediately, tighter credit spreads are always good to see, versus the opposite.

This blog sold a little corporate high yield this past week, disposing of the PIMCO High Yield Fund, which is typically higher quality of the various high yield mutual funds in the junk bond universe, and swapping into the LQD or the iShares Investment Grade ETF.

The swap sacrifices a little yield while adding a little duration or total return (should the Fed reduce the fed funds rates) and protecting client accounts from a credit quality perspective.

Clients remain long the SHYG, the HYG and Pimco’s HYS, so clients are still long about 95% of their high-yield exposure that they’ve owned the last 3 years.

S&P 500 data:

• The forward 4-quarter estimate (FFQE) this week improved to $243.31 from last week’s $243.29 and is the 5th week in a row of sequential improvement in the FFQE.
• The P/E ratio on the forward estimate this week is 21x vs. 21x last week.
• The S&P 500 earnings yield improved to 4.76% vs. 4.75% last week, the first sequential improvement since mid-February ’24.
• The three companies reporting next week that this blog will have an interest in are Micron Technology (MU), Nike (NKE) and FedEx (FDX). Micron reports Wednesday, March 20th, after the close, while Nike and FedEx report after the market close on Thursday, March 21 ’24.

With just two weeks left in Q4 ’23 S&P 500 earnings, there is really little expected change in the results over the next two weeks, thus S&P 500 earnings have entered the quiet period or dead zone, with the exception of the above company reports.

The positive as noted last week is that 2024 S&P 500 EPS estimates have changed little over the last 12-14 weeks which is a positive given that investors and analysts have seen 2024 guidance with January and February ’24 earnings releases.

Corporate guidance is still cautious and that’s usually a plus.

Summary/conclusion: S&P 500 earnings remain in good shape, and the upward drift in the forward estimate and some of the annual S&P 500 EPS estimates is a positive, given this is usually the time of the quarter where analysts get nervous and are slowly reducing numbers.

Nike and FedEx are both US brands with a considerable global reach. It will be interesting to see if FedEx is impacted by Boeing’s (BA) issues as the Wall Street Journal noted this week.

None of this is advice or a recommendation. Past performance is no guarantee of future results. Investing can involve loss of principal even over short periods of time. Readers should gauge their own comfort with portfolio volatility, and adjust accordingly. All S&P 500 EPS and revenue estimates are sourced from LSEG or the London Stock Exchange Group.

Thanks for reading.

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.