SMLL - The Earnings Gap: Why The S&P 500 Is Against The Clock

Over the past decade, the heavy hand of central banks and the ubiquitous coverage of Fedspeak has formed a compelling narrative surrounding the deviation of stock prices from fundamentals. Despite this ingrained justification for rising share prices, a historical analysis of the data argues that stock prices are still closely associated with fundamentals, namely earnings per share "EPS."

The confusion and the detachment from the underlying economy stem from the translation from true, underlying economic profits into "per share" earnings, which are heavily influenced by share buybacks and changes in effective tax rates.

Below we'll