A Look at the S&P 500 and Earnings

Here's a look at the S&P 500 (black line, left scale) over the last few years with its earnings (gold line, right scale).

The two lines are scaled at 16 to 1, meaning, when the lines cross the market's P/E ratio is 16. I used 16 because it seems that the market has tracked that fairly well for the past few years. This market top wasn't marked by outrageous earnings multiples. The values were fine, it was the fundamentals that were shaky.

Two points to note. I used operating earnings. That seems to get some people bent out of shape but it's a much better tool for looking at the market as a whole. Also, AIG's massive loss took out $5.13 from earnings in Q4, so that distorts the picture a little.

Comments

[logicalthought]

Cetin:

In order to properly adjust S&P earnings to suit your optimistic outlook, please don't forget to also remove the consumer discretionary, industrials, materials, and energy sectors.

(And if my aunt had balls, she'd be my uncle.)


On Apr 29 03:06 AM Cetin Hakimoglu wrote:

> yea..if you remove financial and auto earnings the outlook is much
> more optimistic.

2009 Apr 29 07:15 AM

[Thunderlight]

So lets just remove all the poor earning companies from the index then?


On Apr 29 03:06 AM Cetin Hakimoglu wrote:

> yea..if you remove financial and auto earnings the outlook is much
> more optimistic.

2009 Apr 29 08:24 AM

[Fred Voetsch]

"Two points to note. I used operating earnings. That seems to get some people bent out of shape but it's a much better tool for looking at the market as a whole."

No it's not. Not unless you take out all the earnings that were added in because of the over-leveraging that occured for the past two decades, which s what we are seeing when we look at as-reported earnings, which will go negative later this year.

Those fake earnings were spread all throughout the economy right down to the HELOC loans homeowners took out and spent. Now that all has to be paid back. The government throwing money around only makes our future bleaker as we will have to pay THAT back later or go to war with China when they realize we are going to default on the money they loaned us.

Couldn't happen, of course, just as that crazy little guy called Hitler couldn't cause such a ruckus 80 years ago.

Those who ignore history are doomed to repeat it and our entire nation and most of the world is ignoring history.

2009 Apr 29 01:40 PM

[Fred Voetsch]

On Apr 29 03:06 AM Cetin Hakimoglu wrote:

> yea..if you remove financial and auto earnings the outlook is much
> more optimistic.

Governmet has done that and yet earnings are still very bad.

www2.standardandpoors....

How about all the other companies that are posting lower earnings that have nothing to do with autos or financials?

Do you ever look at and consider data that doesn't support our pollyannish hypothosys?

2009 Apr 29 01:44 PM