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.