The Big Shift: A Secular Realignment of Profits and P/E

Why are reported profits for the S&P 500 Index so much higher than normalized profits? Although implied earnings per share (EPS) under Shiller’s CAPE P/E10 and Crestmont’s normalized P/E are expected to be near $90 in 2019, the current forecast for as-reported GAAP EPS is $165.

Why are wages relatively stagnant overall (and declining as a percentage of the economy) while corporate profits increase as a percentage of GDP?

Why does the stock market appear so overvalued to many analysts when, in reality, it may be near fairly valued?

In summary, (1) increased profit margins are the result of slower economic growth; (2) the related increase in EPS will be offset by a lower market P/E and thus will not provide stock market gains; and (3) future returns will remain muted despite an apparently lower level for P/E in the future.

NOTE: the material in this article is so provocative that the concepts are not affecting other material on the website at this time.