As of December 21st, Standard and Poor's current operating earnings estimates for the S&P 500 across the next four quarters (4th quarter 2010 through 3rd quarter 2011) are now 91.42. This compares to their previous estimate for the same period, released November 23rd, of 90.99.
As the prospects for more vigorous economic growth in the year ahead improve, I expect to see additional improvements to their earnings estimates.
Despite trading at multi-year highs now, the S&P still remains relatively cheap, at least compared to bonds. (13.8x forward earnings for an earnings yield of 7 1/4% vs. the 10 Year T-Note yield of 3.35%) And yet we are beginning to see certain segments of the market where valuations have become unrealistic. Companies like Netflix and Salesforce.com trade at multiples that are wholly unsupported by their fundamentals. The "momentum" crowd seems intent upon pushing them to even higher, unsustainable prices. Still, as an asset class, stocks as a whole should deliver superior risk-adjusted returns for the next year or two.
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