The Mother's Milk

Earnings are the "mother's milk" for stocks.  One of the highest correlated indicators for stock market performance is increased earnings.  There is a strong history of market advances and earnings increases.     Of course the inverse is also true When estimates are declining stock prices tend to do the same. That's why we pay so much attention to both year end earnings and forward 12 month earnings.  Today courtesy of the great website Fundamentalis, we will review what's going on with this important part of the market's valuation.  

Because of the rollover of the quarter, we will now focus on forward estimates that look out to the middle of next year.  Earnings bump up over 9% next year according to Fundamentalis and Thomson Reuters.  The forward earnings estimate for the S&P 500 looking out to that point is currently $126.77.  That implies the following on this estimate with the S&P trading at 1,936.

Current PE:                   15.27        {Four Quarter Forward Estimates}

Earnings Yield:               6.54%

Dividend Yield:              1.86%

Current Expected Price Cone of Probability out to 06.30.2015:   1,775-2,200.

The current yield on the 10 year US Treasury is 2.57%.  {Down .01 basis points from our last review.}

The Cone of Probability is our current assessment of the trading range within which we think stocks have the potential to trade during the described time period.  It is a probabilistic assessment based on a many factors.  Some of these inputs are: Earnings estimates, also are those estimates rising or falling, dividend yield, earnings yield and the current yield on the US 10 year treasury.  This is not an exhaustive list of all of the variables that are used in creating the cone.  The Cone of Probability is used solely for analytical purposes.  It will fluctuate with market conditions and changes to the data inputs.  Index prices can and have traded outside of the range of the cone.  The data supplied when we discuss the cone is for informational use only.  There should be no expectation that this price range will be accurate and there are no guarantees that this information is correct.

*Long ETFs related to the S&P 500 in client accounts, although positions can change at any time.