The S&P 500 and Earnings

At times like this, I urge caution when looking at market statistics, but here’s the S&P 500 (blakc line, left scale) and its earnings (gold line, right scale).

You’ll notice that I’ve scaled the two axises at a ratio of 16-to-1. That means whenever the lines cross, the market’s P/E Ratio is exactly 16.
The second-quarter earnings are all in, but we’re about to start the third-quarter earnings season, and we won’t know fourth-quarter for a few more months. As a result, the last two points on the earnings line are estimates. While the bump up in earnings line looks promising, we still don’t know what the future holds.
This could be a great buying opportunity, but as they say, we’ll know more when we’re a little older.

Posted by Eddy Elfenbein on October 6th, 2008 at 1:25 pm

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