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S&P Earnings Update - Nov. 1997



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Executive summary:

 - inflation remains low, employment high
 - real 12-month trailing S&P earnings growth rate of 14%, remains strong
   and steady (the 10-yr median is 10.2%).
 - highest year-over-year return on the S&P registered in 14 years,
   (4 months ago, Aug-97).
 - S&P valuations are high with a P/E of 22.9.  The
   upper end of P/E valuation is right around 24, under present
   conditions.
 - S&P dividend rate (1.7%) is near an all-time low (set Aug-97 at 1.63%)

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[The data used in this study is updated each month using values
as of the close of the first Friday in each month.  The source for
the data is Barron's Market Lab.  This update: November 7, 1997.]

This study looks at the S&P 500 (SPX), its P/E ratio, dividend
rate, the T-bill rate, and inflation as measured by CPI.
Three values are calculated:

INFLAT%  - inflation rate, measured as year-over-year percent
	   increase/decrease in the CPI
EPGR   - year-over-year S&P EPS growth rate, inflation adjusted
SPXR   - year-over-year S&P price growth rate, including dividends,
         inflation adjusted.

SPXR and EPGR adjust for the inflation rate and calculate the excess
return over the risk-free rate to adjust returns during years that
had high inflation rates, when short-term notes offered attractive
returns.

The current S&P 500 PE (22.9) has moved from moderate to high over the
past 9 months (the 10-year median is 18.1, the 30-year median is 14.7).
The P/E has twice met resistance at levels above 24, that seems to
be setting a valuation ceiling on the S&P.

Since June-97, the year-over-year real earnings growth
is a strong 14%, backing off a bit from the 15.8% growth set in Aug-97.
(the 10-yr median is 10.2%, the 30-yr median a modest 1.2%, both
inflation adjusted).

One thing that is working in the market's favor is that year-over-year
earnings comparisons are getting easier  because the earnings growth
a year ago was modest, and declining.  However, in March 1997,
year-over-year earnings growth picked up a full 10%, which will
likely make year-over-year comparisons this coming March 1998 more
difficult.

The first quarter of 1998 looks like it stacking up to be a difficult
time for the S&P.

An SPX PE of greater than 20.0 is usually a warning signal that
the S&P is in over-valued territory.  1992 had PE's as high as 25,
but that period was the beginning of an economic expansion and
there were also many accounting write offs taken in that period.
1987 can serve as a recent time period with market dynamics comparable
to now -- in that period a PE of 21.1 was the highest PE recorded,
P/E's have been above that level, now, for the past 7 months.

Unless earnings continue to come in strongly, while inflation
stays low, the S&P is currently over-valued, and at the high
end of its valuation range, based upon the P/E.

Speaking of inflation: since Augus-97, inflation as measured by the CPI
registered a year-over-year level of less than 2% for the first time
since January 1987.  Some analysts are predicting that inflation
will remain low, others are afraid that this may be as good as it
gets, and inflation is likely to pick up from here.

It is worth noting in passing, the S&P div. yield set a new all
time low, in August-97 at 1.63%  The 10-year median is 3%.  Bullish
analysts are quick to mention that many companies have have changed
their focus from dividends to earnings.  Also, companies increasingly
use stock buy-backs as a method of increasing shareholder return.

The SPXR (annual return, including divs., adjusted for inflation) column
is still at a high level of 32.4%, but well off the recent high set in
Aug-97, at 43.2%.  The current level of real return is in the top 7%
of the past 30 years.  The 30-year median is 8.2%; the 10-year median
is 10.9%.

CONCLUSION: We're very near a top, unless (1) the market becomes
comfortable with even higher P/E levels, or (2) earnings continue
to grow and effectively lower the trailing P/E, making
room for further upward adjustments in price.

DATE     SPX     PE    DIV  TBILL TBOND   CPI INFLAT%  EPGR   SPXR
9711  927.51   22.9    1.7    5.1  6.4    161    1.6   14.3   32.4
9710  965.03   23.8    1.6    4.9  6.3    161    1.8   14.0   38.0
9709  929.05   22.9    1.7    5.1  6.6    161    2.2   13.8   41.8
9708  947.14   23.5    1.6    5.1  6.4    160    2.0   15.8   43.2
9707  916.92   22.8    1.7    5.1  6.6    160    2.2   15.6   39.5
9706  858.01   21.3    1.8    4.9  6.8    160    2.3   15.6   27.3
9705  812.97   21.0    1.9    5.2  6.9    160    2.2   11.5   26.7
9704  757.90   19.6    2.0    5.2  7.1    160    2.5   11.0   15.3
9703  804.97   20.8    1.9    5.1  6.8    160    2.5   10.9   24.6
9702  789.56   21.9    1.9    5.0  6.7    159    3.0   -0.6   23.2
9701  748.03   20.8    2.0    5.1  6.7    159    3.0   -1.8   20.4
9612  739.60   20.5    2.0    5.0  6.5    159    3.3   -1.3   20.1
9611  703.77   20.2    2.1    5.0  6.7    159    3.3   -1.8   18.2
9610  701.46   20.1    2.1    5.0  6.7    158    3.0   -1.5   19.7
9609  655.68   18.8    2.3    5.2  7.1    158    3.0   -2.2   15.7
9608  662.49   19.5    2.2    5.2  6.7    157    2.9    1.5   17.9
9607  657.44   19.3    2.2    5.1  7.2    157    3.2    1.3   17.4
9606  673.31   19.8    2.2    5.1  7.0    157    3.0    1.3   26.0
9605  641.63   18.9    2.2    5.0  7.1    157    3.1    7.5   22.8
9604  655.86   19.3    2.2    5.1  6.8    156    3.2    7.4   28.8
9603  644.37   18.9    2.2    4.9  6.4    156    2.8    8.2   32.7
9602  635.84   18.1    2.2    5.0  6.2    154    2.3   25.7   33.5
9601  616.71   17.3    2.3    5.0  6.0    154    2.7   26.8   34.1
9512  609.98   17.3    2.3    5.3  6.1    153    2.5   25.9   35.1
9511  590.57   17.1    2.4    5.3  6.3    154    2.6   33.1   28.0
9510  582.49   16.9    2.4    5.1  6.5    154    2.8   32.9   28.1
9509  563.84   16.3    2.5    5.3  6.1    153    2.5   34.0   20.0
9508  559.94   17.2    2.5    5.4  6.9    153    2.6   40.0   22.8
9507  556.37   17.1    2.5    5.5  6.5    152    2.6   40.0   25.1
9506  532.51   16.3    2.6    5.6  6.5    152    2.8   40.1   15.7
9505  520.12   17.0    2.6    5.7  7.0    152    3.0   36.0   16.1
9504  506.42   16.5    2.7    5.8  7.4    151    2.7   35.9   13.5
9503  485.42   15.8    2.8    5.7  7.6    151    2.9   34.5    4.4
9502  478.64   17.5    2.8    5.8  7.6    151    2.9   30.2    1.7
9501  460.68   16.9    2.9    5.8  7.8    150    2.8   30.1   -2.1
9412  453.30   16.6    2.9    5.4  8.0    150    2.7   30.5   -2.5
9411  462.28   18.3    2.8    5.1  8.0    150    2.7   27.0    0.7
9410  455.10   18.1    2.9    4.9  7.8    149    2.6   27.0   -1.2
9409  470.99   18.7    2.8    4.6  7.5    149    3.2   26.3    1.6
9408  457.09   20.1    2.8    4.3  7.5    149    2.9   11.2    1.8
9407  446.20   19.6    2.9    4.2  7.5    148    2.8   11.4    0.1
9406  460.13   20.3    2.8    4.2  7.4    148    2.5   11.3    2.5
9405  447.82   20.5    2.9    4.0  7.8    147    2.3   12.0    1.8
9404  447.10   20.4    2.9    3.6  7.2    147    2.4   12.3    1.8
9403  464.74   21.0    2.8    3.4  6.7    147    2.5   12.1    4.5
9402  469.81   23.0    2.7    3.0  6.3    147    2.5   10.4    4.9
9401  469.90   23.0    2.7    3.1  6.3    146    2.5   10.4   10.0
9312  464.89   22.8    2.7    3.1  6.3    146    2.7   10.1    7.8
9311  459.57   23.8    2.7    3.1  6.0    146    2.7   10.4   10.4
9310  461.29   23.9    2.7    2.9  6.1    146    2.8   10.3   12.7
9309  461.34   23.9    2.7    3.0  6.2    145    2.5   10.7   11.2
9308  448.68   22.6    2.8    3.1  6.6    145    2.8   19.3    7.3
9307  445.84   22.5    2.8    3.0  6.8    144    2.8   19.2    8.5
9306  450.06   22.7    2.8    3.1  7.0    144    3.0   17.9    8.9
9305  442.30   23.2    2.8    2.9  6.9    144    3.2   15.8    7.0
9304  441.39   23.1    2.8    3.0  6.8    144    3.2   15.9    9.7
9303  446.11   23.2    2.8    3.0  6.9    144    3.1   15.9   10.2
9302  448.93   24.9    2.8    3.0  7.2    143    3.2   -2.0    8.9
9301  429.04   23.8    2.9    3.1  7.4    143    3.3   -2.3    2.0
9212  432.06   23.9    2.9    3.3  7.6    142    2.9   -2.2   14.3
9211  417.58   24.5    3.0    3.0  7.6    142    3.0  -15.0    6.8
9210  410.47   24.1    3.1    2.7  7.4    142    3.2  -15.1    7.7
9209  417.08   24.5    3.0    3.2  7.4    141    3.0  -15.1    7.3
9208  418.87   25.9    3.0    3.2  7.5    141    3.1  -25.2    8.2
9207  411.77   25.4    3.0    3.6  7.8    140    3.2  -25.2   10.2
9206  413.47   25.3    3.0    3.8  7.9    140    3.1  -24.5    9.1
9205  412.53   25.8    3.0    3.7  8.0    140    3.0  -27.4    8.5
9204  401.55   25.1    3.0    4.1  8.0    139    3.2  -27.6    7.1
9203  404.44   25.1    3.0    4.0  7.9    139    3.2  -27.7    9.3
9202  411.08   23.1    3.0    3.9  7.7    139    2.8  -20.3   20.8
9201  419.33   23.4    2.9    3.9  7.5    138    2.6  -19.8   32.2
9112  379.09   21.1    3.2    4.4  8.0    138    3.1  -20.0   16.4
9111  391.32   20.1    3.1    5.0  8.1    138    3.0  -11.1   26.6
9110  381.24   19.6    3.2    5.1  7.9    137    2.9  -11.1   23.6
9109  389.10   20.0    3.1    5.3  8.1    137    3.4  -11.7   20.8
9108  387.18   18.4    3.1    5.6  8.4    137    3.8   -6.7   12.0
9107  374.08   17.8    3.2    5.6  8.5    136    4.4   -7.3    3.3
9106  379.43   18.1    3.2    5.6  8.3    136    4.7   -7.4    3.1
9105  380.80   17.8    3.2    5.6  8.2    136    5.0  -11.0   11.0
9104  375.35   17.6    3.2    6.0  8.3    135    4.9  -10.9    8.9
9103  370.46   17.1    3.3    6.0  8.0    135    5.1  -10.2    8.8
9102  343.05   15.8    3.6    6.2  8.2    135    5.3  -12.9    1.9
9101  321.00   14.8    3.8    6.5  8.3    135    5.7  -13.2  -10.9
9012  327.75   15.1    3.8    7.1  8.4    134    6.1  -13.2   -9.0
9011  311.85   14.7    3.9    7.1  8.8    134    6.3  -20.7  -10.1
9010  311.50   14.7    3.9    7.2  9.1    133    6.3  -20.7  -13.3
9009  323.40   15.2    3.8    7.4  9.0    133    6.2  -20.5  -11.1
9008  344.86   15.9    3.5    7.5  8.5    132    5.6  -18.7   -2.2
9007  358.42   16.5    3.4    7.7  8.5    130    4.8  -15.4    8.8
9006  363.16   16.8    3.3    7.8  8.6    130    4.7  -17.7   10.9
9005  338.39   14.8    3.5    7.9  9.0    129    4.4  -12.1    6.9
9004  340.08   14.9    3.5    7.8  8.5    129    4.7   -9.7   11.3
9003  335.54   14.7    3.5    8.0  8.6    128    5.1   -8.1   13.3
9002  330.92   14.0    3.5    7.8  8.4    128    5.3   -6.0   10.5
9001  352.19   14.8    3.3    7.6  8.0    127    5.2   -5.9   21.8
8912  350.63   14.8    3.3    7.6  7.9    126    4.6   -4.6   25.2
8911  337.62   13.4    3.4    7.8  7.9    126    4.7    1.8   23.2
8910  349.15   13.8    3.3    7.7  8.1    126    4.5    2.0   24.7
8909  353.73   14.0    3.2    7.7  8.2    125    4.3   15.7   30.6
8908  344.73   13.7    3.3    7.9  7.9    125    4.7   15.1   29.0
8907  324.90   13.3    3.4    7.9  8.3    124    5.0   11.1   19.0
8906  323.75   12.9    3.5    8.2  8.5    124    5.2   11.5   17.6
8905  313.93   12.6    3.5    8.4  8.9    124    5.4   10.3   20.5
8904  302.33   12.5    3.6    8.7  9.2    123    5.1    7.2   13.3
8903  292.09   12.3    3.7    8.8  9.3    122    5.0   18.5    8.3
8902  294.01   12.3    3.3    8.5  9.1    122    4.8   19.7   12.5
8901  284.28   11.9    3.4    8.3  9.1    121    4.7   19.9   13.0
8812  276.98   11.7    3.5    8.1  9.1    120    4.4   32.9   14.2
8811  271.30   11.5    3.6    7.7  9.0    120    4.2   33.1   10.1
8810  277.40   11.7    3.5    7.3  8.9    120    4.3   33.0   -2.0
8809  268.59   12.8    3.5    7.2  9.1    120    4.2   28.0  -16.9
8808  264.20   12.6    3.5    7.0  9.3    119    4.0   28.2  -20.8
8807  269.04   12.8    3.5    6.7  9.2    118    4.2   28.1  -14.4
8806  270.68   12.6    3.4    6.5  9.0    118    3.9   44.3  -11.1
8805  256.11   11.9    3.6    6.3  9.2    117    3.9   44.3  -12.2
8804  262.61   12.2    3.5    5.9  8.9    117    3.9   44.4  -10.0
8803  265.74   13.9    3.5    5.7  8.6    116    3.9   21.3  -10.0
8802  258.12   13.5    3.6    5.7  8.4    116    3.9   21.3   -8.9
8801  249.18   13.1    3.7    5.9  8.9    116    4.1   21.1   -6.6
8712  240.96   14.1    3.7    5.8  9.1    115    4.4    9.9   -4.0
8711  245.00   14.4    3.7    5.8  9.0    115    4.5    9.8   -1.1
8710  280.15   16.4    3.2    6.4  9.6    115    4.5    9.8   16.9
8709  318.66   20.3    2.8    6.3  9.6    115    4.3   -1.5   32.6
8708  329.35   21.0    2.7    6.0  9.0    114    4.3   -1.5   33.2
8707  310.09   19.7    2.8    5.8  8.7    114    3.9   -1.2   28.5
8706  301.37   21.1    2.9    5.7  8.6    114    3.7   -4.1   22.4
8705  289.12   20.2    3.0    5.8  8.8    113    3.8   -4.2   20.8
8704  289.31   20.2    3.0    5.8  8.3    113    3.8   -4.3   21.1
8703  292.46   19.3    2.9    5.6  7.6    112    3.0    4.0   26.4
8702  280.92   18.6    3.0    5.6  7.7    112    2.1    4.9   30.1
8701  264.50   17.5    3.2    5.5  7.6    111    1.4    5.7   30.1
8612  248.61   16.7    3.4    5.5  7.7    111    1.1    2.6   23.2
8611  245.08   16.5    3.4    5.3  7.8    110    1.3    2.5   27.5
8610  237.36   16.0    3.5    5.2  8.0    110    1.5    2.2   30.9
8609  238.26   15.6    3.4    5.2  8.1    110    1.8   -2.4   32.7
8608  244.99   16.0    3.4    5.6  7.7    110    1.6   -2.1   33.5
8607  240.18   15.7    3.4    5.8  7.9    109    1.6   -2.2   27.9
8606  245.30   17.1    3.4    6.2  8.2    109    1.7   -8.0   33.0
8605  238.46   16.6    3.4    6.1  8.0    109    1.6   -7.8   32.5
8604  237.98   16.5    3.4    6.1  7.6    109    1.6   -7.9   35.3
8603  232.32   16.4    3.5    6.6  8.1    109    2.3  -15.2   32.2
8602  219.37   15.5    3.7    7.0  9.1    109    3.2  -15.9   22.6
8601  208.19   14.7    3.9    7.0  9.5    110    3.9  -16.5   22.0

-- 
--
| Gary Funck,  Intrepid Technology, gary@xxxxxxxxxxxx, (650) 964-8135