Earnings

From Dr. Ed's Blog:

"S&P 500 forward earnings rose to a record high of $119.73 last week. It tends to be a great year-ahead indicator of actual earnings when the economy is growing. However, it doesn’t provide a heads-up for recessions. The forward earnings of the S&P 400 MidCaps and S&P 600 SmallCaps also rose to new record highs last week....."

Forward earnings are on a rolling going forward basis so these estimates are likely out to the end of the 3rd quarter, 2014.  If these estimates would hold {and they seem a tad aggressive},  then the S&P 500 is trading with a 14.19 forward PE and a 7% earnings yield.  If these estimates prove to be accurate it would imply an S&P 500  out next year with fair value of 1,800-1,915.  That's a potential increase between 6-12% between now and then. 

Now I'm not saying we're going to be there a year from now.  For one thing as I noted above I think those estimates could be too high.  But it does show that this year's market rise is based on estimates rooted in reality.  We'll be talking more about what our own estimates say for 2014 in a post at a later date.

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

Link:  Yardeni: Blissfully Ignoring the Headlines