• Are we on the verge of huge buybacks?

    The markets seem to have definitively shruged off earnings fears as most companies in the S&P500 produced excellent earnings and growth forecasts.

    Below is a good summary published by Yardeni. Because of copyright issues, I am not allowed to duplicate Figures here, but I'll comment on a few key Figures that can be found in the document:

    1. Figure 16: S&P500 P/E ratios (in Red) have dropped back to 16
    2. Figure 23 tells us that if the P/E ratios were to climb up to 20, that would imply a S&P500 price surging to about 3300
    3. Figure 25 is also very interesting: we can see that earnings growth forecasts have jumped from 10% to 20% for 2018. In past years, such forecasts were usually down going into the final 12 months. This indicates a surge of optimism and fully justifies a continuation of price growth.

    https://www.yardeni.com/pub/peacockfeval.pdf

    One major factor preventing a rapid surge in the S&P500 is the difference between the S&P500 earnings Yields and the 10Y HQY - High Quality corporate bond Yields. (S&P 500 Earnings Yield. Earnings Yield = trailing 12 month earnings divided by index price (or inverse PE.)

    On April 1rst, the difference was 0.29% for the S&P500 earnings yields. A positive difference justifies the risk that an investor takes into buying equities insead of the HQ corporate bonds. On May 11, this difference fell down to 0.07%. This basically means that it is mathematically comparatively too risky to by the S&P500 at the current price.



    We can also see below that investors expect the 10Y Treasuries Yields to increase shortly - since they are selling the 10Y Treasuries. But because the distance between the 10Y HQY and the 10Y Gov Yields is almost fixed, this implies a surge in the 10Y HQY.



    Then, the Green line will fall below the Pink line in the Yields comparison Figure, questioning investor's wisdom.

    But Yardini might be correct with their 2018 earnings growth projection of Figure 25.

    Note that the 10Y Yields and the S&P500 earnings yields - This Figure is based on past 12 months earnings - are provided on the site below:

    http://www.multpl.com/

    The 10Y HQY data can be found at the following address:

    https://www.treasury.gov/resource-ce...ve-Papers.aspx

    Conclusions:

    Yardini displays an expected 20% earnings growth in 2018. Are we going to witness a final rush for buybacks allocations while the corporate HQY are still below earnings yields? Does the vertical Red line of Yardini's Figure 25 represents reality or is it a mere sales pitch from CEOs toward shareholders so that more borrowing are allowed for buybacks?

    After the Q1 earnings, this sales pitch tells that the-mother-of-all-buybacks is in store.