Until recently, most analysts were expecting earnings gains of roughly 8.8% for the S&P 500 in 2015; however, thanks to the big drop in oil prices and its impact on energy stocks, earnings growth for 2015 has been lowered to 7.6%.

The overall earnings adjustments have been rapid, as energy stocks make up roughly 9% of the S&P 500 Index. Just a few weeks ago, earnings growth in the S&P energy sector was expected to be down 13.6 percent in 2015, but it is now expected to be down 21.3 percent, according to S&P Capital IQ.

Let’s look at the following S&P 500 Median PE chart and then factor in 2015 earnings growth of 7.6% to see what it might tell us about potential future return and risk. I favor median PE as it eliminates the extreme outliers and is based on actual reported earnings (not Wall Street’s forward and generally overly optimistic earnings estimates).  Here is some sound advice from NDR on how to think about any PE measurement:

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Steve Blumenthal

Founder & CEO CMG


Stephen Blumenthal founded CMG in 1992. He is CEO, Chief Investment Officer and portfolio manager at Capital Management Group, Inc. where he manages equity and tactical investment portfolios. He is a frequent speaker and writer on investment strategies and has been featured in various media sources including the Wall Street Journal, Barron’s, Investor’s Business Daily, Pensions & Investments Magazine, Investment News, RIA Biz and Smart Money. He has been a guest on CNBC, Wall Street Journal Live, and Bloomberg. Mr. Blumenthal is a frequent speaker at industry conferences (NAPFA, IMCA, Index Universe, Opal Financial Group Indexing & ETF Summit and NAAIM) and is author of CMG’s popular investment research commentary. With 30 years of investment management and industry experience, prior to founding CMG, Mr. Blumenthal worked for Merrill Lynch Institutional, Merrill Lynch Retail and Prudential Securities.

Mr. Blumenthal graduated with a Bachelor of Science degree in Accounting from Pennsylvania State University. He is married, has three children and is active in his community coaching youth soccer.