After reading and studying J.P.Morgan's聽Guide to the U.S. Markets for Q1 of 2019, I聽wanted to share some insights.
S&P 500聽Index at inflection points
- 2018聽was the 9th year of consecutive growth from 2009.聽Two previous economic cycles were growing for 3聽and 5聽years, respectively.
- Forward P/E ratio is not exactly correlated with the price index. Current P/E of 14.4聽returns to the levels of 2013, below 25-year average.
- There is very little relation between 1-year returns to forward P/E ratio. R2 only聽10%.
- The situation starts getting interested when looking at the relationship between 5-year annualized returns and forward P/E ratio, with R2 of 44%. Interestingly the sweet spot of 10% annualized returns can be seen at ~15脳聽P/E.
Sources of earnings per share growth
- 32% YoY EPS growth in Q3聽2018 was very positive, and was driven by 20聽percentage points by margin growth, by 10聽p.p. by revenue growth and by 2聽p.p. by share counts. Every year this distribution is very different.
- Out of the last five years, buybacks have achieved the greatest cummulative values in聽2018.
- Dividends per share of S&P 500聽seems stable at 8.2%.
All the charts in the Guide to U.S. Markets are very easy to read and understand.