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Expected Q3 Earnings Growth of 27.2% | Forward P/Es: Poor Short-Term, Solid Long-Term Predictor | Vanguard’s 2019 Decade Ahead Forecast vs. Reality | Big Tech Capex vs. Free Cash Flow | SpaceX Options Volatility
Derek Moore is joined by Shane Skinner for episode 400 to ask whether markets are up below average this year, with data on the average S&P 500 up year vs. down year since 1950. Then, Citadel Securities breaks down where expected Q3 earnings growth of 27.2% is coming from, led by Micron and Nvidia. Are forward P/E ratios useful? They’re a poor predictor in the short term but a solid one over 10 years, plus a look back at Vanguard’s 2019 10-year return forecasts vs. the S&P 500’s +15.22% decade-to-date annualized return. Plus, big tech capex vs. free cash flow, high-yield and CCC credit spreads, and SpaceX options volatility. All this and more this week.     Average S&P 500 up year of +17.7% vs. down year of -11.8% since 1950 Citadel: Expected Q3 S&P 500 earnings growth of 27.2%, led by Micron and Nvidia S&P 500 sector forward P/E ratios vs. their 10-year averages Forward P/E ratios are a poor predictor of 1-year forward returns Forward P/E ratios are a solid predictor of 10-year annualized returns Vanguard 2019 outlook: 10-year median return forecast of 4.9% for a 60/40 portfolio S&P 500 decade-to-date annualized return of +15.22% vs. Vanguard’s 6.1% estimate Bloomberg: Revenue, capex, and free cash flow for Amazon, Google, Microsoft, and Meta FRED: ICE BofA high yield and CCC & lower option-adjusted spreads Bloomberg: High-yield spreads at 3.31% vs. 2008 high of 17.22% and 2021 low of 2.28% Bloomberg: BCAUOAS spread index at 10.62% vs. its long-term average of 8.91% SpaceX (SPCX) trades at $147.22 with at-the-money options implying ~104% volatility SpaceX expected move based on implied volatility through earnings     Mentioned in this Episode   Signup for ZEGA’s Economic and Market Outlook Wednesday Oct 21st https://us06web.zoom.us/webinar/register/WN_eRKqLJ-OQuCdAdizLYHq7Q?utm_medium=email&_hsmi=2&utm_content=2&utm_source=hs_email#/registration   Derek Moore’s book Broken Pie Chart https://amzn.to/3S8ADNT   Jay Pestrichelli’s book Buy and Hedge https://amzn.to/3jQYgMt   Derek’s book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag   Contact Derek derek.moore@zegainvestments.com      
Broken Pie Chart
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