A decade (or more) of S&P 500 earnings

We prefer our blog posts short and sweet given the info overload inflicted on today’s average investor, so we’ll try to keep this post concise and to the point.

What does a decade of p/e compression look like for the average (or even institutional) investor ?

Here is what we’ve seen the last 12 years:


Date                S&P 500 value          forward est.        p/e ratio

——               ——————         —————-     ————

3/2000           1,550                           $55                        28(x)         height of tech bubble, peak for S&P 500

10/2002           800                            $53                       19(x)          bottom of tech bubble

3/2003            788                              $54                      15(x)           start of Gulf War, end of Nasdaq bear market

10/2007          1,570                           $103                    15(x)           double-top for S&P 500, early stages of financial crisis

3/2009              667                            $60                     11(x)            bottom of financial crisis in March, 2009

5/2012            1,300                            $109                     12(x)          today’s market p/e – note the all-time record earnings for the S&P 500

Anyone see a pattern here ? Important tops and bottoms were selected for obvious reasons, but the reader should likely see that no matter how earnings act, the market p/e continues to compress over the last 12 years. In fact, despite 20% – 30% growth off the 2009 bottom, the S&P 500 hasnt traded much over 15(x) earnings since then. Even during the 2003 – 2007 rally, the S&P 500 multiple stayed roughly even with earnings growth at about 15(x) earnings.

First, hopefully the above columns and data are easily readable in the post. ( I hope the process of posting doesnt goof up ( a technical term) the columns. Second, p/e expansion is the hallmark of a bull market and makes all the long-only advisors look like a genius, while p/e compression is the hallmark of bear markets and we are living through one, and you can see the power it wields on what are pretty good earnings.

Someday this p/e compression will stop and the stock market will start to afford equities some “earnings expansion” on the growth of the S&P 500.

However we are not there yet. It is discouraging.

Maybe due to the volatility in earnings, the S&P 500’s p/e has compressed. Is it macro v. micro ? Is it Greece and China and greater government regulation ?

Inquiring minds want to know.

No individual stocks mentioned



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