S&P 500 Forward Earnings Estimates Rise 31% as Valuation Multiple Falls

Figures published Oct. 21 put the S&P 500's year-to-date rise in forward earnings estimates at 31%, ahead of the index's 13.3% gain and pointing to a lower valuation relative to projected profit.

The index's forward price-to-earnings ratio fell 13.5% in the same comparison. The ratio shows how much investors pay for each dollar of expected earnings. It can decline while stock prices rise if profit expectations increase faster than prices.

They put numbers on the gap between the index's gains and the increase in its forward earnings estimates.

Third-quarter results offer a separate measure of profit growth. An earlier third-quarter earnings outlook put projected growth at 29% from a year earlier as of Oct. 16, when 9% of S&P 500 companies had reported. By Oct. 23, the blended growth rate was 29.5%, with 24% of companies having reported.

The blended rate combines results from companies that have reported with estimates for those still to report. It measures third-quarter growth from a year earlier; the 31% figure measures the year-to-date increase in forward earnings estimates. With most index companies still to report as of Oct. 23, the quarterly figure remained partly a forecast.