Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Tesla Robo Taxis are Coming THIS YEAR! - 16th June 24
Will NVDA Crash the Market? - 16th June 24
Inflation Is Dead! Or Is It? - 16th June 24
Investors Are Forever Blowing Bubbles - 16th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24
Bitcoin Trend Forecast, Crypto's Exit Strategy - 31st May 24
Zimbabwe Officials Already Looking to Inflate New Gold-Backed Currency - 31st May 24
India Silver Imports Have Already Topped 2023 Total - 31st May 24
Gold Has Done Its Job – Isn’t That Enough? - 31st May 24
Gold Stocks Catching Up - 31st May 24
Time to take the RED Pill - 28th May 24
US Economy Slowing Slipping into Recession, But Not There Yet - 28th May 24
Gold vs. Silver – Very Important Medium-term Signal - 28th May 24
Is Gold Price Heading to $2,275 - 2,280? - 28th May 24
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Which S&P P/E Ratio Are We Talking About?

Stock-Markets / Stock Market Valuations Sep 24, 2008 - 12:07 PM GMT

By: Richard_Shaw

Stock-Markets

Best Financial Markets Analysis ArticleBusiness news about earnings and P/E ratios is frustrating and flawed.  If you listen to and read enough reports, you find wide variances in the numbers.  Why?

It's all about the “E”.  Nobody has trouble figuring out the “P”, but the “E” has many possible meanings:


  • Reported earnings
  • Earnings before “items”
  • S&P Core earnings
  • Earnings on a trailing 4 quarter basis
  • Current earnings (typically 2 quarters back and 2 forward)
  • This calendar year earnings
  • Next calendar year earnings
  • This fiscal year earnings
  • Next fiscal year earnings

This week, we have seen S&P 500 reported as having a P/E of 12 and 13.5 in the press.  Barron's Market Lab said 24.22 as of last Friday.  We've also read 20 and 24.

The problem is that reports are seldom delivered with an explanation of the basis of the “E”.

So here is a report with the explanation.

Standard & Poor's on their site provides earnings history and short-term estimates.  We think “as reported” earnings are the most meaningful (we think earnings before items is silly, because there are always “items”). 

Here are the “as reported” earnings from S&P for various time periods, along with the corresponding P/E.  We can all agree that the closing “P” today was 1207 for the index.

  • E trailing 4 quarters = $52.67 (P/E 21.3)
  • E trailing 2 quarters + estimated 2 forward quarters = $59.57 (P/E = 20.3)
  • E estimated forward 4 quarters = $60.32 (P/E = 20.0)
  • E estimated calendar 2009 4 quarters = $58.87  (P/E = 20.5)

An ETF tracking the S&P 500 is SPY.  Morningstar reports the forward P/E as 13.5.  They certainly aren't using “as reported earnings”.

The rule of thumb used by the Fed under Greenspan was that an S&P P/E equal to 100 divided by the 10-year Treasury rate was OK.  With those Treasuries at 3.83% today, a P/E of 26 would be OK.  We don't know if that rule ever made sense, but it doesn't make sense in the current circumstances where Treasuries are massively purchased in a run for safety from the equities meltdown.

We think US large-cap stocks are expensive from both a P/E perspective and a technical perspective ( see our recent article ), which leads us to believe that a test of $105 (from the current $121) for SPY is possible to likely — and that if $105 is breached, look out below.

We could be dead wrong, of course, but feel there is more fundamental bad news ahead, that the unknown unknowns are more in number and greater in significance than normal, and that the willingness and readiness of investors to rush back in (as they did with a pre-market S&P increase of over 6% the morning after the idea of a total bailout was announced) is a sign that capitulation has not yet occurred. 

When what is perceived as good news does not light fires of greed, then we are at the bottom.  We aren't there yet.

Richard Shaw

By Richard Shaw 
http://www.qvmgroup.com

Richard Shaw leads the QVM team as President of QVM Group. Richard has extensive investment industry experience including serving on the board of directors of two large investment management companies, including Aberdeen Asset Management (listed London Stock Exchange) and as a charter investor and director of Lending Tree ( download short professional profile ). He provides portfolio design and management services to individual and corporate clients. He also edits the QVM investment blog. His writings are generally republished by SeekingAlpha and Reuters and are linked to sites such as Kiplinger and Yahoo Finance and other sites. He is a 1970 graduate of Dartmouth College.

Copyright 2006-2008 by QVM Group LLC All rights reserved.

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Do your own due diligence.

Richard Shaw Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in