12 month S&P 500 earnings peaked in the third quarter of 2007 at $90 per share. So, from the third quarter of 2006 to third quarter of 2007, 12 month earnings peaked, and began to subsequently decline. During the first quarter of 2009, the 12 month earnings bottomed at a staggering $7 per share. Based on forward estimates, 12 month earnings are supposed to surpass the 2007 peak in the third quarter of 2011. This is the fastest recovery according to Robert Schiller and S&P.
The gap between projected 12 month profits and the 10 year average annual earnings is set to widen to the most since 1951.
Following the credit crisis, profits tumbled 92%, but will have recouped their peak in 50 months. That compares to 52 months following the dot.com bubble when earnings dropped by 52%. Following the great depression, profits did not recoup their 67% losses for 19 years.
The S&P500 has traded at an average of 15.7x reported annual profits since 1900, according to Robert Schiller (show this with data). Estimated earnings for 2011 are $95.21. $95.21 x 15.7 values the SP500 at $1,491.
The 10 year inflation adjusted average earnings is for the SP500 is $60 (research this). If earnings are $95.21 in 2011, they will be 59% higher than the inflation adjusted average earnings over the past ten years. The only other times since 1951 where forward earnings have approached that level was in December 2006 and August 2000, at the peaks of profit and economic expansion (research this).
The SP500 cyclically adjusted PE is currently 22 (or 24 times; research this?). The historical average for the cyclically adjusted PE is roughly 15.5 times , which is in right on top of the average PE versus annual reported earnings (nick - research this).
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