S&P500 Earnings, Quarterly versus Price (Q1 2009- Present)
Click to enlarge
spx price vs earnings
Source: Bloomberg Data


S&P500 Earnings, Trailing Year versus Price (1990 – Present)
Source:  Dan Greenhaus, BTIG


Following last week’s discussion on narratives, I want to direct your attention to the charts above.

One shows the quarterly recovery in earnings and prices since the March 2009 lows. The second via Dan Greenhaus of BTIG shows the same data going back to 1990, using trailing 12 month earnings. (I used Dan’s spreadsheet to make the first chart).

Dan notes that if the S&P were to end Q3 at 1700, the index would be up 113% from its closing lows from March 2009.

Over the same time frame, the index has seen earnings rise 140%. Meaning, the increase in earnings seen since the bottom has outpaced the appreciation in the index.

Note S&P500 is expected to earn $103 on a trailing twelve month basis, up from $40 during the March 2009 level. Trailing 4 quarter earnings from March 09E: Q1 09 = $10.11,  Q4 08 = -$0.09, Q3 08 = $15.96 and Q208 = $17.02.

The Fed’s liquidity certainly had an impact — but so too have earnings snapping back. Unless you believe earnings are irrelevant, that is a hell of a strong argument to make to explain the huge ramp up from the lows.

Category: Earnings, Valuation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

25 Responses to “Earnings vs Equities Since 2009 Lows”

  1. killben says:


    Few questions I can think of about the earnings…

    How much of the earnings can be attributed to banks?
    How much of the earnings can be attributed to FASB’s help?
    How much of the earnings can be attributed to low interest rates and thus mortgage and Home Builders?

    Would the earnings be same if FASB’s help and interest rate crutch are removed?

  2. ByteMe says:

    The real question is: is the market getting ahead of itself? It looks like it might be in the medium term.

  3. neddyj says:

    This much earnings growth is certainly a good reason why stocks are up so much, however – no one seems to remember the critical accounting change that allowed banks to no longer have to take charges for their non performing assets (loans).

    Why does that not matter any more? Wasn’t it mainly the huge charges that banks had to take in 2008 that caused the dramatic drop in earnings that occured back in 2008, and if so – how can we look at this picture and say there’s been great earnings growth. While earnings growth certainly has been the case for many companies – wouldn’t this chart look very different if banks actually had to account for the bad loans that they’ve made? And another point – won’t bad loans eventually have to be written off by banks even if they don’t have to show their deterioration in their earnings reports? If so, is it right to ignore the bad loans that banks may have simply because they no longer have to account for them the same way?

  4. peterkrause says:

    I would like to see “hell of a strong argument” (narrative, anyone?) tempered a bit in its enthusiasm.
    Aren’t we always told to consider smoothing, as with the monthly data for housing and jobs? While I love looking for a relationship between earnings and price indexes, wouldn’t it be more prudent to look at whether earnings are trending higher to support the recent price action? And if we heed admonishments not to try and catch the lows or highs in our entry and exit decisions, then it makes sense not to correlate or extrapolate too closely to extremes. #still drinking from the firehose.

    • Havent you been saying that for 4 years?

      • peterkrause says:

        Not really. I have evolved into a Costanza, in that I am able to make my demur during the market rise, then do the opposite of my instinct. So far so good. I still see the slope of the index diverging from the glide path of earnings. Medium term I expect volatility. I’m not worried about long term ’cause I know the markets will be higher. But medium term I still want to “understand” the action. You’ve been a big help.

  5. peterkrause says:

    Damn the math. If the index closes Q3 at 1700, isn’t that a 1025 point gain from the March 9, 2009 low of 675? Isn’t 1025 like, a 150% gain, not 113?

  6. Hallsto says:

    The more confused the markets seem to get, the more melt up we seem to see. Maybe I’m the lone black sheep here, but I can’t see how earnings being up on record low labor participation really does anything holistically good for the US economy. Sure its fine for those few poor saps still laboring around the casino at 9am, but with record buybacks it seems like the party is closing up for everyone not hypnotized by a handful of data points.

    I’m not really concerned about the taper talk, but cost push on rates…

  7. MayorQuimby says:

    I don’t think BULLS saw that kind of ramp coming to be perfectly honest.

  8. Anonymous Jones says:

    I agree this is a very strong argument for earnings being a causal factor.

    And this is exactly why I’m skeptical of continuing strong performance.

    How long can earnings grow in a stagnant economy? There must be a limit, right? Not sure how close we are to it, but if history is any guide (and sometimes, I acknowledge, it is a very, very poor guide), we can’t be too far away.

    • Hallsto says:

      The trend is collapsing volume, collapsing labor participation, higher earnings, bigger fed balance sheet. Do the math, there is a bifurcation between the casino upstairs and the slum forming around its doors. Thank god that pretty girl keeps my rum full, a man could get downright depressed without the goggles.

  9. resuscitate says:

    Quality of earnings count. I would like to see the decomposition of this earning into its parts — demand increase, savings from low interest arbitrage, share buy backs, business consolidation, etc. With a stagnant economy and elevated unemployment in the US and a global slow down looming elsewhere, this earning story is a little wobbly and not at all “hell of a job, Brownie” type. The explained part of stock price (i.e. by economic fundamentals) does not support the rise in all indices. The unexplained part (i.e the Fed, liquidity, sentiment, psychology, alternative choice,…) however plays significant role in the run-up in price. Bernanke made no secret about his policy intent regarding stock price. I thought all students of market should know his game. A hypothetical question for anyone here. What would happen to the US stock market tommorow and weeks, months and years after if Bernanke were to withdraw his support immediately? A thought experiment.

    • While quality of earnings matter in theory, its impossible to apply any objective metric to that over time.

      Consider a chart of the Dow and its earnings for the past 100 years — can you point to me where there are specific earnings quality issues along that time line?

      I am not being snarky, but it smacks of a narrative we have been speaking of lately. I dont know how if your request is realistic over time.

  10. Scott Frew says:

    Barry, you did something wrong with that top chart, as far as I can tell. Seems to show the S&P bottoming at 800, and to show it currently pushing up toward 2000 today, up above 1950 at any rate. Not sure how you transposed Dan’s chart, but I think something was lost in translation, so to speak.

  11. ThomasSowellTrain says:

    How about GDP vs asset prices? That metric only seems to be brought up after-the-fact with bubbles.

    • rd says:

      GDP vs Total Stock Market cap is graphed here:


      The total market cap has recently gotten to about 112% of GDP. Theoretically, there is no reason why the market cap can’t exceed US GDP if foreign earnings make up an increasing percentage of the earnings. However, historically this would be a very high ratio although 1999-2000 proved that 150% is possible. The ratio was lower than this value from 1998 to before 1971, so reversion to the historic conditions would be ugly. 2009 briefly brought the ratio down to the typical levels from 1971 to 1996

  12. CSD says:

    From the lows in 2009, S&P has gone up 151,47% if it closes at 1700. TTM Earnings have gone up 139,5%.
    Since the beggining of 2012 TTM Earnings have gone up 8.42%, and S&P 35.24%.
    This doesn´t mean I think stocks are expensive. The P/E expansion was reasonable from my point of view given the low interest rate environment.
    The key right now is EPS. Earnings peaked by mid 2012, but buybacks helped EPS higher.
    At the moment I see no growth in EPS in next quarters, so much of the correction in P/E would be behind us. Unless we are in a 1999 situation again, which I certainly doubt.

  13. gman says:

    The almost universal push back in comments against a market at all time highs is bullish in itself.

  14. [...] Earlier this month, we looked at the question of whether Stocks were Cheap or Expensive. That was a follow up to our glance at how much Earnings and Equities had rallied off the 2009 lows. [...]