Our Blue Angels analysis multiplies the weekly forward earnings of the S&P 500/400/600 by forward P/Es of 10-22 in increments of 2 (chart). We then can see how the three stock price indexes are tracking their Blue Angels, which always fly in a parallel formation. Forward earnings is the time-weighted average of industry analysts' consensus expectation for earnings during the current year and the coming year.
In recent weeks, the forward earnings of the S&P 500/400 have turned up, while still falling for the S&P 600. The S&P 500 stock price index is up over 20% since October 12 as investors anticipated that the earnings outlook might improve. And now the analysts are coming around to the same view as the recession scenario is becoming less consensus.
What about valuation?