Earnings Estimates: 2013, 2014

Long time readers of this blog understand that one of the primary legs of our valuation matrix is the four quarter rolling earnings for the S&P 500 and the year end earnings estimates for the same index.  Dr. Ed Yardeni notes this morning that S&P 500 earnings estimates for 2013 seem to have stabilized.  He also throws out an early 2014 consensus earnings number:

".....2013 estimates edged down last week, but should start to stabilize around $113 through the end of the year and until the next earnings season during January. For industry analysts, the long term is 2014, and their estimate for that year edged up to $127 last week, a projected increase of about 12% y/y. So while forward earnings are showing signs of stalling recently, they should be moving to new highs again if 2014 estimates hold up." 

While my earnings estimates for next year are in a state of flux, I still believe the consensus estimates that Yardeni highlights above are too high for both years.  Still for the sake of argument let's just assume that the S&P 500 could earn this over the next two years and let's also assume stocks would garner the same PE by the end of next year as they carry now, which is about a 13.  Then the S&P 500 would be worth 1469 next year and 1651 by the end of 2014 based on these estimates.    The S&P closed around 1410 last night.  Not saying this will happen by any stretch of the imagination but it is food for thought at the potential for stocks over the next couple of years if these numbers are remotely correct.  

*Long ETFs related to the S&P 500 in client and personal accounts.