The chart below outlines the Year-over-Year (Y-o-Y) percentage change in the S&P 500 earnings since 1960. From what we can tell, the slide from the 2010 peak in Y-o-Y earnings in the S&P may have bottomed in 2015 and is on a path to the 2013 peak which could be followed by the 1964 recovery peak.
What stands out about the current move upward is the fact that the decline went into negative territory. While the decline wasn’t as low as we’d like, at or below the 1970 level, we have to accept that there are few times this indication went negative without a very strong recovery to the upside. For now, we’re hedging our commentary by watching for the 2013 level before going on to the 1964 peak.
However, we suspect that the recovery in S&P earnings could test the 1976 peak. What does that translate into for the stock market. Although not as low as the 1975 trough, the Dow Jones Industrial Average nearly doubled within a two year period. Let’s call for a +50% increase in the Dow Jones Industrial Average from the 2015 low. This would bring the index to 24,153.57 by 2018.
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