March 03, 1999

Since 1970, S&P 500 earnings per share have increased almost sevenfold, while on a total return basis the market has increased better than 33 times. This isn't surprising considering the market's P/E ratio has risen to the low 30's from about eight in the mid-70's. Some postulate that earnings are what drive the market, but if that were true, we'd expect to see earnings catching up to total returns over the long run. Unless 28 years isn't sufficiently long, you'd have to conclude that earnings and returns could diverge for long periods of time.

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