On Earnings & Valuation

This from the folks over at Chart of the Day:

With earnings season having kicked off this week, today's chart provides some long-term perspective in regards to the current earnings environment by focusing on 12-month, as reported S&P 500 earnings. Today's chart illustrates how earnings declined over 92% from its Q3 2007 peak to Q1 2009 low -- the largest decline on record (the data goes back to 1936). Since its Q1 2009 low, S&P 500 earnings have surged (up over 700%) and currently come in at a level that has only been exceeded during the latter years of the dot-com and credit bubbles. Current expectations on Wall Street are that earnings reach the mid-$70 level by the end of 2011 -- a level surpassed only briefly during the tail-end of the credit bubble.

My comment:

Earnings have been coming in above expectations so far into the 2nd Quarter season.  I think we are going to hear more talk about some sort of a slowdown.  While I think that may already be factored into the market I do think it is possible that any slowdown is going to trim both GDP and earnings growth for the rest of the year.  As a result I'm going to lower my year end S&P 500 target range just a bit.  I think we will now end the year in a range of 1,225-1,300.  I will use a 1,260 mid-point and a 1,350-1400 target for year end 2011.  That's still 13-25% higher for stocks at some point over the next 12-18 months from where we stand today.

*Long ETFs related to the S&P 500 in client and personal accounts.