The title is an alternative interpretation of the phrase “climbing the wall of anxiety”, as the period we are experiencing maintains concern about a potential recession, with markets nonetheless approaching all-time highs. In fact, there are still quite a few investors “betting” on the fall of the S&P 500 (195K contracts), which shows us that the path to much lower levels is not in the program yet!
For 2024, market estimates of EPS for the companies that make up the S&P 500 (the sum of the average EPS estimates for the 500 companies in the S&P 500) are $246.3 per share. If this is the final figure for 2024, it will be the highest absolute EPS number for the index since 1996.
Over the past 25 years (1998-2022), the average difference between market estimates of EPS and the final/actual figure for the same year has been 6.9%. In other words, estimates made at the beginning of each fiscal year overestimated the outcome by 6.9%. In absolute terms, market estimates overestimated outcomes in 17 out of 25 years, or 68%.
It is worth noting that in four years the overstatement of earnings per share exceeded 25%, as unexpected events occurred that were impossible to take into account at the beginning of the year. More specifically, in 2001 (+36%), 2008 (+43%), 2009 (+29%) and 2020 (+27%). 2001 saw the September 11 terrorist attacks, 2008 and 2009 saw the subprime mortgage crisis, and 2020 saw economic shutdowns due to the COVID-19 pandemic. If the above four years were excluded, the average difference between estimate and final earnings would be only 2%.
It becomes clear that market estimates of EPS at the beginning of the year are very accurate as long as no unusual event occurs, as 2% does not make much of a difference to valuations. For 2024, current estimates are at $246 per share, giving a P/E of 19.4, compared to the 5-year average of 21.7 and the 10-year average of 19.7. The 2024 estimates from the world's largest investment firms, as compiled by Bloomberg, average 4,861 points, with a high of 5,400 and a low of 4,200 for the S&P 500.
What made us more conservative in limiting exposure to stocks is the risk premium. The risk premium approximation is defined as the difference between the asset's return and the risk-free rate (10-year US bond). The anxiety about buying stocks should be reflected in the risk premium, as the more or more uncertainties there are, the higher the risk premium will theoretically be to compensate the investor for owning the stock!
The risk premium at the end of 2023 has shrunk to less than 1%, a number that doesn't seem to match the uncertainties and risks S&P 500 stocks currently face. Obviously, if you remove the big 7 stocks (the great 7) from the S&P 500, which make up a significant portion of the index's earnings and capitalization, things improve, but again we can't say we're not in the attractive zone.
In conclusion, don't forget that a lower earnings growth rate means a lower average P/E, as investors will be willing to pay less for the stock in the face of shrinking future earnings. As is known, discount rates used for the expected stream of future earnings play an important role in company valuations. The discount rate, in turn, equals the risk-free rate plus a risk premium that compensates investors for the risks of holding the shares. But interest rates have reached their lowest levels over the past two decades, making their return to zero levels look like a utopia!
EGEDs scheduled for 2024
On January 3, 2024, the first Greek treasury bonds bearing interest (EGED) will be issued with a maturity of 13 weeks (quarters). The following table shows the dates of EGED auctions for the first half of 2024, so that the individual investor can plan it so that he can “earn some satisfactory returns in risk-free assets.”
It should be noted that there are four quarterly editions in 2024, six semi-annual editions, while only two are annual editions. The last issue of EGED was for 6 months, and the yield was 3.87%, while the previous issue was at 3.84%. It is noteworthy that the latest quarterly issuance achieved a return of 3.88%, while the 52-week return was 3.7%.
It is noteworthy that the excess coverage, in the last EGED auction for the year 2023, amounted to 1.37 times, while in the previous auction it reached 1.53 times. The recent decline in the 10-year bond yield, following the country's upgrade, is expected to lead to a decline in EGED bond yields in 2024.
Eurobank: paving the way for dividends
Dr.. On 12/15/2023, Eurobank agreed to distribute discretionary reserves to its sole shareholder, Eurobank Holdings, in a total amount of 410 million euros, of which 168.26 million euros come from the “Profits Reserve” account and 241.7 million euros come from the “Goodwill Reserve for Transfer of Securities” account. “.
As understood, the dividend distribution process is in the final stage and is subject to the necessary decisions and approvals in accordance with the current legal and regulatory framework, including the approval of the European Central Bank.
Finally, market estimates are calling for a dividend of €0.06-€0.09 per share, a figure that represents a dividend yield of 3.8%-5.6%, based on Eurobank's current price levels. The average dividend yield of European banks, as determined by the Stoxx 600 Index, reaches 6.6% for 2023, while the corresponding figure for 2024 exceeds 7%!
Agenda (1/1/2024 – 1/7/2024)
Focus on bank interest rates on deposits and loans in the 4-day week
Today, Tuesday, the Bank of Greece announces bank financing and deposits for November 2023.
On Wednesday, the pre-emptive exercise period for participation in AMK begins with a cash payment of 0.34665707600092 new Trastor shares for every old share, at an offer price of €1.42 per new share.
On Thursday, ELSTAT announces unemployment (monthly estimates) for November.
The Bank of Greece announced on Friday bank deposit and loan rates for November 2023.
All eyes will be on non-farm private sector payrolls on Friday
On Tuesday, China, Germany, Great Britain and the Eurozone will announce their manufacturing PMI for December.
On Wednesday, unemployment is announced in Germany for December, while in the afternoon the ISM Purchasing Managers' Index and the open jobs that existed on the last working day of November in the United States are announced, a figure that the Fed takes in Consideration for interest. Rate decisions.
German December inflation will be announced at midday on Thursday, and the change in US December non-farm payrolls and services PMI based on December data will be announced in the early afternoon.
On Friday, Eurozone inflation for December will be announced, and in the early afternoon the US Non-Farm Payrolls Index is published at the same time as the US December Unemployment Index, while the week concludes with a reading of the US Non-Farm Payrolls Index for December. Services from ISM based on latest figures for December.
* Demosthenes Tringas is a certified stock and market analyst at Beta Exchange – [email protected]
** Copied from Kivalio newspaper
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