The S&P 500's trailing 12-month P/E ratio is currently just above 15. In the first half of the bull market rally that began in March 2009, the S&P's P/E ratio rose steadily just inline with the price of the index. If the price of the index (P) and the P/E ratio are both going higher, it means earnings are either not going up as much as price, are flat, or are going down. In late 2009, the P/E ratio started to trend downward, dropping from 23 to 15 since last December. Over the same time period, the index itself is basically flat, so this means earnings have increased. A chart showing the divergence in price and P/E ratio in the middle of the bull market is shown below.

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Yesterday we highlighted the percentage of companies that have beaten earnings estimates this reporting period. Below we break down the beat rate by sector. Four sectors have a higher beat rate than the entire market, while six have a lower beat rate. The Consumer Discretionary sector has the highest beat rate this earnings season at 80.6%. Consumer Discretionary is followed closely by Industrials at 79.8%. Consumer Staples and Technology are both right around 76%. Energy, Telecom, and Financials are all tied at 60% for the lowest earnings beat rate. Materials is at 69.4%, and Health Care is at 70.3%.

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Forget the GDP.

We’ll get the report on Q2 GDP at 8:30 tomorrow but I’ll be watching the Employment Cost Index to see if we are recovering (click chart on right to enlarge). I know it seems like "commie talk" to my Conservative friends, but rising wages and benefits are signs of a healthy economy and you can plot the rise and fall of the stock market very neatly against how well the workers are treated.