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I thought I would do a review of recent earnings of the S&P 500.

Recall that earnings* for the 500  largest U.S. companies, the S&P 500,  are reported in two ways.  The first is GAAP (Generally Accepted Accounting Principles) earnings. This number is the one that is reported to the SEC. The second is operating or non-GAAP earnings. The non-GAAP earnings are what analysts follow because it adjusts for one-time events and is said to more actually reflect their business.

For the 2nd quarter of 2017 which just ended, blended earnings are coming in at about $104 (GAAP) earnings and about $116 (operating)earnings; the latter is almost always higher as companies can exclude items they do not like to report.  This is up from $87 (GAAP) earnings and $115 (operating) earnings for the 4th quarter of 2015 which were low, in part, due to the hit energy companies took when oil prices crashed. In the 3th quarter of 2014 earnings came in at $106 (GAAP) and $115 (operating).  Earnings have recovered to their previous peak reached several years ago while the market has moved higher.

This puts the Price/Earnings ratio** of the S&P 500 at 24x’s (GAAP) and 22x’s (operating). The long-term average Price/Earnings ratio is about 15x’s earnings, which is closer to what I have labeled “fair value” in previous entries (see below).

*all earnings are Trailing Twelve Months (TTM)

**The Price/Earnings ratio compares a stock’s 12-month trailing earnings to the current price.