Earnings Expectations Disconnect

We know the continued case for US stocks…bond yields are too low, bills pay nothing, and the P/E is slightly above average. The following paragraphs offer some history on the natural range of profits, earnings, and stock market streaks. Then maybe a case for a continued allocation to US stocks can be decided on.

First, as we can see, historically (through 2010) average corporate profits as a % of GDP were about 9%.

Through the 3rd quarter 2014, profits as a percent of GDP were over 14%.

There has only been a few other times historically in which profits as a percent of GDP have been this high.
Additionally, the following chart illustrates earnings and earnings estimates (red), the trend in earnings (Shiller & Crestmont), and a major disconnect.

Lastly, the number of times we have had 6 consecutive years of positive gains (’09, ’10, ‘1 1, ’12, ‘1 3, ‘1 4) in the stock market is uncommon.