DWS KGaA Investor Relations Media Career Belgium Insights Capabilities Solutions Service Profile Search Home » Insights » CIO View » Americas CIO View Americas CIO View S&P view from new high: Earnings, valuations and taxes Nov 03, 2021 In Brief Another S&P new high. Three things to observe: Earnings, valuations and taxes S&P 3Q21 EPS: Record high quarterly S&P EPS helps to drive new S&P high S&P PE Sliced & Diced: S&P PE below record & recent highs, but not by much Equity Nation USA. Equity allocation at US Defined Contribution plans is at a record 77% S&P constituent effective tax rates very low vs. history, but most are over 15% Americas Equities David Bianco Chief Investment Officer, Americas Download PDF Another S&P new high. Three things to observe: Earnings, valuations and taxes S&P delivers 24% return year to date (YTD), an October treat. The Russell 1000 and its Growth and Value indices all delivered 22-24%. Thus, strong YTD returns with breadth, not style dominated, but no leadership rotation either as mega-caps and Growth outperform. We think small caps could outperform through January on no corporate tax rate hikes. We raised our allocation to 3% from 2.5%. In small, we prefer quality oriented active strategies. S&P 3Q21 EPS: Record high quarterly S&P EPS helps to drive new S&P high About 70% of S&P earnings per share (EPS) has reported and 79% of companies beat on EPS and 19% missed (rest in-line), with an aggregate surprise of 10.0%, 7.9% ex Financials. 53% beat on sales and 23% missed, an aggregate sales surprise of 1.2%, 0.8% ex Financials. Bottom-up blended 3Q EPS has climbed to $52.84, +36.3% y/y. If the remaining companies beat by 5%, 3Q EPS will finish at $53.75, +38% y/y. Bottom-up blended aggregate sales is +14.9% y/y. The blended pro-forma net margin is 13.6%, vs. 14.2% in 2Q and 11.4% a year ago. Annualized quarterly S&P EPS is at a record of about $215; 4Q21 annualized likely ~$225. We expect 4Q EPS to between $55-58 and 2021 S&P EPS to finish between $212-215. At October end, the trailing S&P price-to-earnings ratio (PE) was 25.2; but the past 4 quarters of strong sequential quarterly EPS growth puts the index at about 21.5x 2021E EPS. The S&P is 20.5 - 21.5x likely 2022 EPS, depending on corporate tax legislation. This current and forward PE is lower than the 23x observed about a year ago and the record 24x in 1999-2000. Yet the median forward PE is near all-time highs and slightly above 1999-2000. As the breadth of company PEs above their history is greater than the Tech driven S&P PE surge of 1999. We remain comfortable with a 22x trailing S&P PE provided 10yr Treasury Inflation-Protected Securities (TIPS) yields stay negative. Defined contribution (DC) plan allocations reflect individual investor decisions, whereas defined benefit (DB) plans are managed by institutions with different risk-taking budgets and efficiencies. Corporate sponsored DB plans reduced equity allocation, but individuals in corporate sponsored DC plans raised it. Household equity allocation of total financial assets is at its highest other than in 2000. Household bank deposits are up 30% since the pandemic; stable deposit/S&P market cap. US equity and exchange-traded funds (ETFs) flows turn positive in 2021; negative 11 of past 13 years. Corporate taxes are complicated. There are statutory, effective, current and cash tax rates. These rates are volatile year to year, especially on a generally accepted accounting principles (GAAP) basis. Inside, we identify S&P companies, generating over $1 billion pretax income, with effective GAAP tax rates under 15% in 2019 and 2021 YTD, there are 36 firms, excluding Real Estate Investment Trusts (REITS), Utilities and cruise ships. More topics Nov 24, 2021 Equities Americas CIO View S&P 500 to 5000: Within reach thanks to virtual reality Nov 22, 2021 ESG Sustainability becomes part of investment advice | ESG - mandatory or optional? Inquiring about sustainability preferences will become mandatory in investment advisory. CIO VIEW QUARTERLY NEWS- LETTER Quick Access DWS KGaA CIO View Facts & Figures Slavery and Human Trafficking Statement (PDF) Engagement Policy (PDF) Information on sustainability Contact Copyright © 2021 DWS DWS Investment Management Americas Inc. - 086368 _1 (11/2021) (11/23) Cookies Policy We use cookies and similar technologies that are essential to operate our websites. With your consent, we will use cookies for performance analysis of our websites. 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