something to think about for monday, page-44

On January 18, 2007 S&P estimated that as-reported earnings for 2007 would be $89.10 per share. The index was at 1426, which gave a forward P/E (price to earnings) of 16.

And the real number for 2007? It was $71.56, so down about 20% from the estimates at the beginning of the year, and down 12% from 2006. Not a good year, as it turned out.

Now, S&P came out with an estimate for 2008 on March 30 of last year. They projected earnings of $92.30 for this year. By the end of the year that was down to $83.98, which would give a forward P/E of 17.48, which is starting to be pricey.

And what are they currently projecting for 2008? $71.20, which is roughly what the earnings were for 2007. That also puts us into a rather sporty P/E at current levels of 19.2 on a forward basis.

But wait. It gets worse. They project that for the four quarters ending in June the earnings will be down to $65.15, which yields a very high P/E of 21 at today's prices. Do you think the stock market could be at risk if we get into a full-blown recession and P/E ratios are at the top of historical valuations, except for the 2000 bubble valuations?