Pre-Q1-Reporting Index Weighing: S&P 500’s P/E Ratio was ~17 in Q1 2022, Now is 19

Stocks may have rallied sharply off their 2022 lows, shrugging off a mini-banking crisis in the process, but investors still seem skeptical that the economy and earnings can recover in a similar fashion.

Earnings estimates for Q1 2023 have dropped 6.3% since the end of 2022, compared with a 10-year average of 3.3%, according to FactSet. FactSet also notes that the consensus downgrade coincides with an increase in the number of U.S. companies issuing negative earnings outlooks. Thus, 106 companies in the S&P 500 have issued negative forecasts for the quarter, compared with an average of 65.

Earnings for the S&P 500 as a whole are expected to be down 9.4% YoY, but earnings are expected to still rise 1.4%. Crucially, US stock market valuations have risen only modestly since October. The price-to-earnings ratio for the S&P 500 was around 17 then, and it is now 19, reflecting rising prices.