S&P 500 2019 Q4 Earnings: Major Adjustments Coming


The S&P 500 final earnings for 2019 Q4 are out, and based upon GAAP (Generally Accepted Accounting Principals) earnings, the S&P 500 is finally back into the normal value range, but is still overvalued. The following chart shows us the normal value range of the S&P 500 Index, indicating where the S&P 500 would have to be in order to have an overvalued P/E of 20 (red line), a fairly valued P/E of 15 (blue line) or an undervalued P/E of 10 (green line). There are three hash marks on the right side of the chart, which show where the range markers are projected be at the end of 2020 Q4 based upon estimated future earnings (2020 Q4).

This chart is mostly based upon estimates reported before the COVID-19 crisis hit, and major downward adjustments in earnings are expected as reporting progresses through April and May.

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Historically, price has usually remained below the top of the normal value range (red line); however, since about 1998, it has not been uncommon for price to exceed normal overvalue levels. The market hasn't been undervalued since 1984.

I use GAAP earnings as the basis for this article. The table below shows earnings projections through the end of this year, but major revisions are expected for the last three quarters of 2020.

The following table shows where the colored bands will be based upon earnings estimates, but, again, I expect they will be significantly lower once the majority of Q1 2020 reporting is in.

CONCLUSION: Market valuation is not a precise timing tool, but keeping track of it tells us if the fundamentals are favorable or not. Currently, the market is overvalued, but we know that earnings are crashing, and the value range will be adjusted significantly downward. It is inconceivable to me that prices won't adjust downward accordingly.

Technical Analysis is a windsock, not a crystal ball.

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Carl Swenlin
About the author: is a veteran technical analyst who has been actively engaged in market analysis since 1981. A pioneer in the creation of online technical resources, he was president and founder of, one of the premier market timing and technical analysis websites on the web. DecisionPoint specializes in stock market indicators and charting. Since DecisionPoint merged with in 2013, Carl has served a consulting technical analyst and blog contributor. Learn More
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