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Market Update: 02-26-18

RAISING 2018 EARNINGS FORECASTS

John Lynch Chief Investment Strategist, LPL Financial | Jeffrey Buchbinder, CFA Equity Strategist, LPL Financial

Fourth quarter earnings season has been outstanding. As good as it has been, perhaps most impressive is the strong guidance corporate America has provided. In response, we have raised our S&P 500 Index earnings forecast for 2018 and our S&P 500 year-end fair value target proportionately. Our revised year-end S&P 500 fair value range of 2950–3000, approximately 7–9% above Friday’s close, represents a 19.5 price-to-earnings (PE) ratio on $152.50 in earnings per share (EPS).

STRONG COMPANY GUIDANCE

Fourth quarter earnings growth of over 15% reported by S&P 500 companies is outstanding, in our opinion, but the lead headline is the strong corporate guidance. That positive message has translated into a more than 7% increase in consensus S&P 500 operating earnings estimates for 2018 [Figure 1]. A ramp that swift and sharp, in an already favorable earnings environment, is unprecedented in our experience....

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