Is the SP 500 Overvalued? Part II

As a continuation from the previous post, I will now share the SP 500 juxtasposed with GAAP Reported Earnings by Quarter (not by Trailing Twelve Months). All of this data can be found here http://us.spindices.com/indices/equity/sp-500

The SP 500 was loosely tracking GAAP EPS each quarter and then in late 2014 a large divergence developed between the SP 500 index and the Quarterly GAAP EPS. As a side note, **Reported earnings = Income from continuing operations GAAP (Generally Accepted Accounting Principles) and includes corporate (M&A, financing, layoffs), and unusual items. At the quarter close of 9/30/2010 the SP 500 was around 1140 and the GAAP EPS # was similar to today's GAAP EPS #. 





Is QE and ZIRP to blame for the divergence? Was this EPS drop a one quarter anomaly? One thing is for certain, central banks have caused MASSIVE DISTORTION in Markets. If the SP 500 index actually traded based on fundamentals and earnings power, the index *should* be much lower than where we are today.

Lastly, I found a graphic from the St. Louis Federal Reserve which depicts merchant wholesales inventories-to-sales ratio. When inventories rise and/or sales decline, this ratio rises. This ratio has not been this high since the 2009 financial crisis! Will central banks ever allow markets to focus on price discovery or will they forever coordinate a stimulative illusion? Central Banks around the world seem to be delaying the inevitable day of reckoning, because today the distortions don't support reality.

Semper inops quicumque cupit - Whoever desires is always poor.