re: Mueller-Glissmann of GS predicts 10% drop in S&P 500 over next 3 months

Then why wasn't the market valued this way 2, 3, 4 years ago? Interest rates haven't changed at all (other than the .25 point raise last year) in 5+ years. Not to mention and we've had two years of declining earnings. So, simply saying "it's justified because of the interest rate environment" seems like basically saying, "because I said so".

The more I look into S&P 500 earnings projections, the more frustrating it gets. On the one hand, I look up officially reporting earnings and see it clearly dropping below $100, but then I keep reading articles about how it's holding steady at around $115-120, same as last year. What gives?

The differential between pro forma and GAAP earnings keeps growing wider and wider...



So while GAAP earnings for were $103.63 (2013), $105.02 (2014), and $88.18 (2015), the pro forma earnings typically reported were something like $109-$118-$119. That's a huge difference.

WSJ (2/24/16): " S&P 500 Earnings: Far Worse Than Advertised"

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This is why skeptics tend to call pro forma figures EBBS, or earnings before bad stuff.

So what did unadulterated 2015 results look like?

Energy companies registered some of the biggest differences between GAAP and pro forma earnings. In total, S&P 500 energy companies had an estimated GAAP loss of $48 billion. That stands in stark contrast to the $45 billion of income they reported on a pro forma basis.

But energy companies weren’t the only ones writing off the bad stuff last year. Health-care and materials companies registered big differences. Materials companies reported $13 billion in GAAP earnings compared with $30 billion in pro forma earnings. And health-care companies earned $104 billion under GAAP versus $157 billion pro forma.

And then there was tech: Under GAAP, S&P 500 tech companies earned an estimated $176 billion in 2015, $42 billion less than their pro forma earnings of $218 billion. Some of that difference reflected many tech companies’ long-standing practice of excluding stock-based compensation from pro forma results. But the 19% gap between the two earnings measures was nearly double the difference in 2014, a reflection of the many other items that got excluded in a tough year—such as restructuring costs and business write-downs.

Overall S&P 500 earnings under GAAP came to $787 billion last year, S&P Dow Jones Indices estimates. That is $256 billion less than the pro forma estimate of $1.04 trillion.

For investors taking a clear-eyed view, a bad year looks even worse.

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Some recent articles on the matter...
Bloomberg's Nir Kaissar (8/1/16): " Get Smart about Earnings in This Stock Market"
Seeking Alpha (8/4/16): " Looking Beyond the GAAP"
Roy Walker's Blog (8/10/16): " Blowing the Lid Off the Biggest Scam in Big Business"

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This long-simmering debate has reached a boiling point in recent months, as the gulf between GAAP and non-GAAP earnings has gotten too big to ignore. In 2015, about 87% of companies in the S&P 500 reported adjusted earnings, up from 73% in 2010. And the median size of the adjustment increased from 8% in 2010 to 25% in 2015. In aggregate, reported GAAP earnings were almost 22% below adjusted earnings last year. Overall, there has been a sizeable increase in both the frequency and the magnitude of the adjustments.

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