A Happier New Year for Earnings

Key Points:
•    Total Net Income for S&P 500 to almost double yr/yr in 4Q, mostly due to rebound in Finance
•    Total earnings expected to fall 7.1% sequentially, but look for positive surprises
•    After 2 years of declines, earnings expected to surge by 25.1% in 2010
•    Revenues to fall more than Earnings in 2009, rise less in 2010: Margins expanding
•    First quarter now expected to see 19.3% yr/yr earnings growth
•    2009 Earnings Revisions Ratio for full S&P 500 falls to 1.82, down from 2.12 last week - still high
•    2010 Revisions Ratio at 1.90, down from 1.92 last week
•    Firms up/firms down ratio at 1.65 for 2009, 1.45 for 2010
•    S&P500 expected to earn $571.6 billion in 2009, $715.0 billion in 2010
•    Bottom Up estimates: $62.27 for 2009, $77.74 for 2010
•    Top Down estimates: $57.45 for 2009, $73.45 for 2010

Welcome to the new Earnings Trends. We have decided to start focusing our analysis of the S&P 500 based on Zacks' own sector groupings rather than the S&P GICS sectors. There are 16 Zacks sectors and only 10 GICS sectors, so the new groupings will result in better granularity of the data. The old way simply grouped too many very different companies together. In addition, we for the first time are presenting top-line as well as bottom-line expectations and surprise information. This is very much of a work in progress, and we will be adding additional information, tables and perhaps even some graphs over the next few months.

The third quarter was a fantastic earnings season. With all of reports in, there have been 379 that exceeded expectations while only 72 have fallen short, a ratio of 5.26. While it is true that most companies will normally try to under-promise and over-deliver, this quarter the beats are beating the misses by about twice the normal margin of 3:1.

Nor have all the surprises only been by a penny or two, but there have been lots of companies that simply crushed the earnings estimates. The median surprise is a very high 7.07%. Over the last five years, a median surprise of about 3.0% has been normal.

Part of the reason is that expectations were set very low going into the earnings season. For most companies, their earnings are still below year-ago levels, just not as far down as people thought they would be. Only 226 firms have posted positive year-over-year growth, versus 271 which have fallen short of year-ago levels, a ratio of 0.83.

Now it is time to turn our focus to the fourth quarter. Saying that the market as a whole faces easy year-over-year comps is a bit like Noah remarking that it looks like rain. Total earnings in the fourth quarter are expected to be more than double year-ago levels, up 98.1%. This is mostly due to very easy comparisons after last year’s disaster.

However, the growth is very much concentrated in a few sectors, most notably the Financials, but with a nice assist from the Autos and Construction (although those sectors are far smaller). It is expected to be a quarter of huge margin expansion for the market as a whole, as year-over-year revenues are only expected to rise by 1.4%.

Because of the year-over-year distortion from the debacle that was last year’s fourth quarter, it is more instructive to look at the sequential growth (although keep in mind that some sectors, most notably Retail, are highly seasonal). There the picture is far more subdued, with total earnings in the fourth quarter actually expected to be 7.1% below third quarter levels. Although if we see even a normal amount of positive surprises, the level is probably going to be more like flat sequentially.

Aerospace is expected to be the sequential leader, but keep in mind that it was awful on a sequential basis in the 3Q, so that is not real strong evidence of a big underlying growth trend there. In all, 9 of the 16 sectors are expected to post lower total earnings in the 4Q than in the 3Q.

Looking at full-year earnings, total net income is still expected to be lower than that of 2008, but just by 5.6%, a much smaller decline than the 22.8% plunge of last year. Next year will be one of earnings recovery, with growth of 25.1% expected, but note that that will still leave earnings below 2007 levels.

While the data is still relatively thin for 2011, and thus should be taken with a grain of salt, further growth of 19.9% is expected for total earnings in 2011. In 2010, the percentage growth numbers will be astronomical for the Auto and Construction sectors, but that is due to dividing from close to zero.

Among the larger sectors, Basic Materials and the Financials are expected to be the growth leaders for the year. Energy is also expected to see a large rebound in its total profits. Together Finance and Energy will account for more than half of all the incremental earnings in 2010; even though together they account for only slightly over 25% of the total market capitalization of the index.

Cost-cutting has been the major force driving earnings and earnings surprises. However, the costs to one company are either the revenues of another company, or someone’s paycheck, which is then spent to create revenues for firms. The bottom-up data coming out of all these individual firms seems to confirm what we have been getting from the macro statistics from the government.

The economy is growing due to increases in productivity -- higher GDP with fewer workers. While clearly companies cannot continue to grow earnings forever based only on cost cutting, it does mean that when they do start to see revenue growth, earnings growth could be explosive as the greater operating leverage kicks in.

The continued high revisions ratios for both 2009 and 2010 should give us confidence that those growth rates will actually be achieved, if not exceeded. The S&P 500 is selling for just 14.1x consensus expectations for 2010, or an earnings yield of 7.09%, or roughly twice the yield on the 10-year Treasury note. Stocks look very attractive, at least relative to bonds at this point.

Scorecard & Earnings Surprise
•    Reports so far extremely positive relative to expectations
•    Earnings Surprise Ratio (#beat/#miss) at 5.26
•    Perfect: Conglomerates, 8 positive surprises, no disappointments; Business Service 8 and 0
•    Almost perfect: Medical with a ratio of 36 to 1; Industrials 20:1
•    Median Earnings Surprise 7.07%, a very strong reading
•    Year-over-year Earnings Growth Ratio (# Positive Growth/# Negative Growth) at 0.83
•    Massive positive surprises in cyclical Construction, Industrial and Discretionary sectors

In evaluating the data presented here, keep the percentage reported in mind. For some sectors, the sample size is extremely small. The move to the 16 Zacks sectors means that even when all reports are in, some of the sectors will still have relatively few firms in them. For firms with only a few reports in, the median surprise will be very volatile as new firms are added to the sample.

Overall, two small sectors -- Conglomerates and Business Services -- appear to have the most impressive performance so far this quarter on the surprise front. Among the larger sectors, strong arguments could be made for Staples having the best surprise profile, although Industrials are also in contention.

Note: the Surprise data is based on the 3Q results; the growth numbers in the tables below are based on the 490 S&P 500 firms that have not yet reported 4Q results (4Q defined as periods ending in November, December and January).

Scorecard & Earnings Surprise
Income Surprises	Yr/Yr Growth	% Reported	Surprise Median	EPS Surp Pos	EPS Surp Neg	# Grow Pos	# Grow Neg
Conglomerates	-21.64%	100.00%	16.41	8	0	1	8
Industrial Products	-28.91%	100.00%	13.92	20	1	9	12
Consumer Discretionary	-14.07%	100.00%	12.10	22	5	8	22
Construction	76.05%	100.00%	11.85	6	4	5	6
Business Service	9.12%	100.00%	11.11	8	0	3	6
Consumer Staples	1.88%	100.00%	10.53	40	4	31	13
Computer and Tech	-10.16%	100.00%	7.69	57	8	34	48
Aerospace	-59.63%	100.00%	6.74	8	2	4	6
Basic Materials	-47.72%	100.00%	6.73	14	4	4	16
Utilities	5.56%	100.00%	5.63	27	8	23	14
Medical	3.62%	100.00%	5.63	36	1	34	9
Retail/Wholesale	2.67%	100.00%	5.41	38	5	26	20
Finance	431.85%	100.00%	5.41	56	16	39	39
Oils and Energy	-62.90%	100.00%	4.84	29	10	2	39
Transportation	-34.41%	100.00%	3.09	7	2	1	9
Auto	183.55%	100.00%	1.54	3	2	2	4
S&P	-10.85%	100.00%	7.07	379	72	226	271

Sales Surprises
•    Sales Surprise Ratio at 1.42, median surprise 0.53%
•    Staples missing on Sales even as they beat on Earnings
•    Tech looks terrific with a 3.26 Sales Surprise Ratio
•    Sales Growth Ratio at just 0.43
•    Most Tech firms have declining sales, but less of a drop than expected
•    Under 30% of all firms reporting have higher revenues than last year

Sales Surprises
Sales Surprises	Yr/Yr Growth	% Reported	Surprise Median	Sales Surp Pos	Sales Surp Neg	# Grow Pos	# Grow Neg
Computer and Tech	-6.47%	100.00%	2.37	63	20	18	65
Medical	4.92%	100.00%	1.28	32	11	35	7
Finance	22.49%	100.00%	1.23	33	19	33	44
Auto	-11.94%	100.00%	1.08	6	0	0	6
Consumer Discretionary	-10.07%	100.00%	0.92	21	9	7	23
Retail/Wholesale	1.66%	100.00%	0.68	31	15	26	20
Oils and Energy	-40.57%	100.00%	0.46	23	18	3	38
Conglomerates	-16.29%	100.00%	0.45	5	3	1	8
Business Service	-6.75%	100.00%	0.34	5	4	3	6
Basic Materials	-28.79%	100.00%	0.25	11	9	1	19
Industrial Products	-19.45%	100.00%	-0.06	11	11	1	21
Consumer Staples	-6.45%	100.00%	-0.15	18	25	11	33
Transportation	-19.93%	100.00%	-0.36	3	7	0	10
Construction	-27.47%	100.00%	-1.35	4	7	0	11
Aerospace	4.64%	100.00%	-1.73	3	7	7	3
Utilities	-18.59%	100.00%	-12.59	8	30	3	35
S&P	-10.69%	100.00%	0.53	277	195	149	349

Reported Quarterly Growth: Total Net Income
•    Aerospace to show the highest sequential growth, bouncing back from a bad 3Q
•    Finance to be "back in black" after massive losses a year ago (+10.3B vs. -$56.3B) but well below 3Q total net levels ($22.8B)
•    Cyclical Basic Materials, Auto sectors to post huge year-over-year growth (low base)
•    Positive yr/yr growth expected for 10 sectors, negative for 6; Energy, Transportation and Industrials lag
•    Tech and Retail both expected to post double-digit gains, both year over year and sequentially (serious seasonality issue for Retail)
•    Total net earnings in 4Q expected to be almost double year ago, mostly due to Finance turnaround, but sequentially total earnings expected to decline 7.1%
•    Positive surprises could lead to flat earnings sequentially

Reported Quarterly Growth: Total Net Income
Income Growth	Sequential Q1/Q4 E	Sequential Q4/Q3 A	Year over Year 4Q 09 A	Year over Year 1Q 10 E	Year over Year 3Q 09 A
Basic Materials	44.83%	-18.81%	483.29%	381.81%	-47.72%
Auto	-43.22%	-24.54%	134.12%	132.12%	183.55%
Finance	102.06%	-54.92%	- to +	8.05%	431.85%
Construction	70.33%	-3.58%	71.24%	78.27%	76.05%
Computer and Tech	-11.65%	15.38%	20.49%	30.47%	-10.16%
Retail/Wholesale	-20.47%	26.03%	10.50%	5.96%	2.67%
Consumer Staples	-5.99%	-11.86%	7.43%	8.52%	1.88%
Aerospace	-7.34%	148.97%	4.78%	2.55%	-59.63%
Consumer Discretionary	-26.81%	0.54%	3.81%	13.10%	-14.07%
Business Service	96.47%	8.04%	0.22%	5.70%	9.12%
Utilities	23.55%	-38.21%	-1.88%	-3.48%	5.56%
Medical	9.46%	-7.06%	-3.68%	6.88%	3.62%
Conglomerates	-24.79%	-11.60%	-7.51%	-11.31%	-21.64%
Industrial Products	13.58%	-23.07%	-25.62%	16.77%	-28.91%
Transportation	-15.88%	0.93%	-26.41%	14.30%	-34.41%
Oils and Energy	9.85%	6.08%	-28.45%	42.93%	-62.90%
S&P	3.62%	-7.11%	98.06%	19.35%	-10.85%

Reported Quarterly Growth: Total Revenues
•    Total S&P 500 Revenues down 11.3% year over year in 3Q
•    Year-over-year revenue growth of 1.4% expected for 4Q, up 2.4% expected in 1Q
•    Retail expected to take sequential revenue lead in 4Q, mostly due to seasonality
•    Finance and Aerospace to post highest year-over-year revenue growth
•    Only 5 sectors expected to post positive year-over-year revenue growth in 4Q; 11 negative
•    Construction revenues continue to be demolished

Reported Quarterly Growth: Total Revenues
Sales Growth	Sequential Q1/Q4 E	Sequential Q4/Q3 A	Year over Year 4Q 09 A	Year over Year 1Q 10 E	Year over Year 3Q 09 A
Finance	-0.21%	-12.64%	24.54%	-16.82%	18.65%
Aerospace	-6.33%	6.71%	12.62%	1.64%	4.64%
Medical	-0.51%	5.17%	9.53%	8.41%	4.92%
Retail/Wholesale	-7.30%	11.28%	4.30%	5.46%	1.21%
Computer and Tech	-5.06%	5.74%	3.13%	6.96%	-6.43%
Auto	-9.01%	-2.72%	-0.85%	7.36%	-11.94%
Business Service	22.14%	9.84%	-3.23%	1.41%	-6.75%
Basic Materials	-8.87%	-0.10%	-3.51%	2.06%	-28.79%
Consumer Staples	-8.22%	-4.34%	-5.10%	-2.56%	-6.57%
Consumer Discretionary	-10.61%	4.46%	-5.28%	4.08%	-10.07%
Utilities	-33.83%	1.30%	-6.48%	-37.75%	-18.59%
Oils and Energy	11.20%	-3.21%	-8.03%	33.36%	-40.57%
Transportation	-3.99%	3.65%	-9.20%	5.25%	-20.00%
Conglomerates	-8.25%	4.47%	-9.46%	-1.06%	-16.29%
Industrial Products	-5.09%	-1.25%	-12.29%	-8.16%	-19.45%
Construction	-2.27%	-6.46%	-21.25%	2.82%	-27.47%
S&P	-4.32%	1.37%	1.39%	2.37%	-11.33%

Annual Total Net Income Growth
•    Total S&P 500 Net Income in 2009 expected to be 5.6% below 2008 levels
•    Total earnings for the S&P 500 expected to jump 25.1% in 2010, 20.0% further in 2011
•    Total earnings in 2010 to still be 8.8% below 2007 levels
•    Data for 2011 is still thin, so take with a grain of salt
•    Staples, Medical and Business Service only sectors to see positive growth for 2009, although Finance, Construction and Autos moving from a loss to a profit
•    Massive Construction and Auto gains in 2010 due to very low base; Basic Materials, Finance, and Energy expected to be earnings growth leaders in 2010. Conglomerates, Medical and Utilities expected to lag, although all sectors expected to be positive

Annual Total Net Income Growth
EPS Growth	2008	2009	2010	2011
Construction	+ to -	- to +	16616.99%	77.52%
Auto	+ to -	- to +	834.62%	79.11%
Basic Materials	-12.33%	-61.83%	93.11%	23.77%
Finance	+ to -	- to +	74.32%	47.21%
Oils and Energy	20.43%	-56.39%	43.88%	27.02%
Transportation	3.72%	-31.02%	22.02%	19.94%
Industrial Products	7.48%	-36.85%	21.61%	19.90%
Aerospace	13.31%	-16.76%	19.70%	6.73%
Computer and Tech	9.83%	-4.71%	19.38%	12.57%
Busines Service	14.28%	4.58%	14.75%	20.96%
Consumer Staples	-2.55%	1.54%	12.28%	8.36%
Retail/Wholesale	7.01%	-3.18%	11.72%	13.81%
Consumer Discretionary	6.93%	-8.69%	11.32%	14.10%
Utilities	5.82%	-0.81%	9.46%	9.96%
Medical	9.16%	1.93%	9.18%	9.78%
Conglomerates	-10.96%	-33.19%	1.26%	20.75%
S&P	-22.78%	-5.56%	25.10%	19.89%

Annual Total Revenue Growth
•    Total S&P 500 Revenue in 2009 expected to be 9.6% below 2008 levels
•    Total revenues for the S&P 500 expected to rise 7.2% in 2010
•    Only 4 sectors to post positive revenue growth in '09, all expected to be positive in '10
•    For 2009, Revenues fall more than Earnings; for 2010, Earnings rise faster than Sales - both mean big margin expansion
•    Energy, Autos, Materials and Construction see biggest revenue declines in 2009, but will see double-digit increases in 2010

Annual Total Revenue Growth
Sales Growth	2008	2009	2010
Oils and Energy	24.34%	-36.39%	20.96%
Basic Materials	11.50%	-25.24%	12.78%
Construction	-25.81%	-23.51%	10.90%
Utilities	11.81%	-6.03%	10.45%
Medical	7.73%	5.34%	8.49%
Transportation	8.09%	-16.11%	7.03%
Industrial Products	10.76%	-16.41%	6.14%
Computer and Tech	6.60%	-3.37%	6.02%
Retail/Wholesale	6.20%	4.17%	5.35%
Auto	-8.23%	-25.24%	5.23%
Consumer Staples	1.74%	-8.93%	4.80%
Business Service	9.14%	-9.77%	4.22%
Consumer Discretionary	5.22%	-9.32%	3.71%
Aerospace	2.26%	6.47%	1.96%
Finance	-22.57%	4.94%	1.52%
Conglomerates	6.32%	-14.12%	1.14%
S&P	4.21%	-9.55%	7.17%

Revisions: Earnings
The Zacks Revisions Ratio: 2009
•    Revisions Ratio for full S&P 500 down to 1.82, from 2.12 last week - still strong
•    Upward revisions continuing even after earnings season is over
•    Small Auto, Aerospace sectors post infinite revisions ratios, with no cuts at all
•    Staples and Tech leading among the major sectors
•    Energy and Utilities weakest among major sectors for 2009
•    Ratio of firms with rising to falling mean estimates falls to 1.65 from 1.81
•    Total number of revisions (4-week total) down to 1,369 from 1,484 last week (-7.8%)
•    Increases down to 883 from 1,009 (-12.5%), cuts up to 486 from 475 (2.3%)
•    Total Revisions activity past peak for this earnings season, will reach low point near New Years

The immediate effects of the much-better-than-expected earnings for the third quarter are starting to fade as the estimates roll off the 4-week moving totals. However, revisions activity remains quite strongly positive for both this year and next.

The broad increases in earnings estimates seems to reflect a much better short-term outlook for the economy. Note that some of the most cyclical areas such as Transportation, Retailers and Autos are seeing a large preponderance of upward over downward earnings revisions, and that most of the firms in those sectors are seeing their consensus estimates increase.

On the other hand, the defensive Staples and Medical sectors have very high revisions ratio of 4.72 and 2.37, respectively, so it’s not just the cyclicals. Then again, given the great performance by the Staples on the surprise front, a strong estimate revisions performance is not surprising.

Retailers at both ends of the spectrum have impressive revisions profiles for 2009. At the high end, Tiffany & Co. (TIF - Analyst Report) is doing well, while at the low end, the revisions profile for Big Lots (BIG - Analyst Report) is just as impressive.

The Zacks Revisions Ratio: 2009
Sector	%Ch Curr Fiscal Yr Est - 4 wks	# Firms Up	# Firms Down	# Ests Up	# Ests Down	Revisions Ratio	Firms up/down
Auto	6.97	4	1	8	0	NM	4.00
Aerospace	0.02	4	2	3	0	NM	2.00
Conglomerates	-1.33	4	3	10	1	10.00	1.33
Consumer Staples	1.24	26	7	85	18	4.72	3.71
Computer and Tech	2.11	49	14	264	57	4.63	3.50
Transportation	2.64	4	3	21	6	3.50	1.33
Medical	0.01	20	13	45	19	2.37	1.54
Retail/Wholesale	0.92	31	14	206	88	2.34	2.21
Consumer Discretionary	-0.93	13	7	34	18	1.89	1.86
Industrial Products	2.58	11	6	31	21	1.48	1.83
Basic Materials	-0.43	10	5	20	17	1.18	2.00
Business Service	-0.10	4	2	3	3	1.00	2.00
Utilities	-0.10	15	19	18	22	0.82	0.79
Oils and Energy	-1.74	15	23	54	84	0.64	0.65
Finance	-0.86	40	32	73	115	0.63	1.25
Construction	-0.96	6	4	8	17	0.47	1.50
S&P	0.29	256	155	883	486	1.82	1.65

Revisions: Earnings
The Zacks Revisions Ratio: 2010
•    Revisions Ratio for full S&P 500 falls to 1.90 from 1.92
•    Positive surprises, positive economic data translating to estimate increases for 2010, as well as 2009
•    Six sectors have 3 or more revisions for each cut
•    Ratio of firms with rising estimate to falling mean estimates at 1.46, down from 1.48 last week
•    Total number of revisions (4-week total) up to 1,461 from 1,498 (-2.5%)
•    Increases down to 957 from 985 (-2.8%), cuts down to 504 from 513 (-1.8%)

The overall picture for 2010 in terms of revisions is broadly similar to that of 2009. The most notable exception is for the Transports, which were on top for 2009 but at the very bottom for 2010. However, in both cases, it is based on very few estimates actually being revised for the sector. The revisions ratios are most useful when they are based on a large number of revisions, so take the numbers for the small sectors like Transportation and Business Service with a grain of salt.

The Tech sector's positive revisions are mostly being driven by upgrades among the chip stocks. Some of the firms in that area with the most impressive revision profiles for 2010 include Analog Devices (ADI - Analyst Report), Micron Technology (MU - Snapshot Report), National Semiconductor (NSM) and Texas Instruments (TXN - Analyst Report).

The Zacks Revisions Ratio: 2010
Sector	%Ch Next Fiscal Yr Est - 4 wks	# Firms Up	# Firms Down	# Ests Up	# Ests Down	Revisions Ratio	Firms up/down
Conglomerates	0.23	4	2	26	6	4.33	2.00
Consumer Staples	1.09	28	9	73	19	3.84	3.11
Computer and Tech	0.80	48	17	241	68	3.54	2.82
Auto	2.85	3	1	7	2	3.50	3.00
Industrial Products	0.32	11	6	28	9	3.11	1.83
Basic Materials	1.82	9	3	27	9	3.00	3.00
Consumer Discretionary	-0.22	12	8	40	17	2.35	1.50
Retail/Wholesale	0.94	30	14	181	82	2.21	2.14
Medical	0.09	23	12	71	35	2.03	1.92
Business Service	0.44	4	3	7	4	1.75	1.33
Transportation	0.86	2	5	16	10	1.60	0.40
Finance	-0.25	36	39	128	105	1.22	0.92
Aerospace	-0.07	4	3	6	5	1.20	1.33
Oils and Energy	-0.31	16	24	78	88	0.89	0.67
Construction	2.22	5	4	7	9	0.78	1.25
Utilities	-0.74	14	20	21	36	0.58	0.70
S&P	0.39	249	170	957	504	1.90	1.46

Total Income and Share
•    S&P500 expected to earn $571.6 billion in 2009, $715.0 billion in 2010
•    Excluding Financials, total net income expected to be down 18.8% in 2009
•    Energy share of total earnings plunges to 10.9% in 2009 from 23.7% in 2008; rebound to 11.3% in 2010 expected
•    Finance share of total earnings moves from deficit in 2008 to 10.5% in 2009, 14.6% in 2010
•    Medical share of total earnings far exceeds market-cap share (index weight)
•    Two sectors, Financials and Energy, to account for 50.2% of all incremental earnings in 2010 over 2009, although they account for just 25.3% of total market cap

Total Income and Share
Sector	Total Net Income $ 2008	Total Net Income $ 2009	Total Net Income $ 2010	% Total S&P Earn 2008	% Total S&P Earn 2009	% Total S&P Earn 2010	% Total S&P Mkt Cap
Computer and Tech	$126,132	$120,189	$143,486	20.84%	21.03%	20.07%	22.19%
Finance	-$24,606	$59,921	$104,453	-4.07%	10.48%	14.61%	14.01%
Medical	$87,819	$89,514	$97,734	14.51%	15.66%	13.67%	11.27%
Oils and Energy	$143,318	$62,495	$89,916	23.68%	10.93%	12.58%	11.33%
Consumer Staples	$54,617	$55,458	$62,269	9.02%	9.70%	8.71%	8.59%
Retail/Wholesale	$56,396	$54,601	$61,000	9.32%	9.55%	8.53%	9.06%
Consumer Discretionary	$34,479	$31,482	$35,047	5.70%	5.51%	4.90%	5.24%
Utilities	$30,518	$29,615	$31,676	5.04%	5.18%	4.43%	3.95%
Conglomerates	$32,846	$21,945	$22,221	5.43%	3.84%	3.11%	3.68%
Basic Materials	$21,512	$8,211	$15,857	3.55%	1.44%	2.22%	2.53%
Aerospace	$15,547	$12,941	$15,489	2.57%	2.26%	2.17%	1.78%
Industrial Products	$18,602	$11,747	$14,285	3.07%	2.06%	2.00%	2.28%
Transportation	$13,973	$9,638	$11,760	2.31%	1.69%	1.64%	2.14%
Auto	-$6,047	$471	$4,406	-1.00%	0.08%	0.62%	0.80%
Business Service	$3,197	$3,344	$3,837	0.53%	0.58%	0.54%	0.63%
Construction	-$3,098	$9	$1,585	-0.51%	0.00%	0.22%	0.51%
S&P 500	$605,206	$571,580	$715,021	100.00%	100.00%	100.00%	100.00%

P/E Ratios
•    S&P 500 trading at 17.6x 2009 earnings, or an earnings yield of 5.68%
•    Trading at 14.1x 2010, 11.7x 2011 earnings, or earnings yields of 7.09% and 8.55, respectively
•    Earnings yields attractive relative to 10-year T-Note rate of 3.48%
•    Medical has lowest P/E based on 2009 earnings; Aerospace cheapest on 2010 earnings
•    Materials high 2009 P/E to fall dramatically in 2010
•    S&P 500 expected to earn $62.17 in 2009, $77.74 in 2010 and $93.68 in 2011

P/E Ratios
P/E	2008	2009	2010	2011
Construction	-16.5	5388.6	32.2	18.2
Transportation	15.4	22.4	18.3	15.3
Auto	-13.3	170.4	18.2	10.2
Conglomerates	11.3	16.9	16.7	13.8
Business Service	19.8	18.9	16.5	13.6
Industrial Products	12.3	19.6	16.1	13.4
Basic Materials	11.8	30.9	16.0	12.9
Computer and Tech	17.7	18.6	15.5	13.8
Consumer Discretionary	15.3	16.7	15.0	13.2
Retail/Wholesale	16.2	16.7	14.9	13.1
Consumer Staples	15.8	15.6	13.9	12.8
Finance	-57.2	23.5	13.5	9.2
Oils and Energy	8.0	18.2	12.7	10.0
Utilities	13.0	13.4	12.6	11.7
Medical	12.9	12.7	11.6	10.6
Aerospace	11.5	13.8	11.6	10.8
S&P 500	16.6	17.6	14.1	11.7

Data in this report, unless stated otherwise, is through the close on Friday 12/18/2009.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market-beating Zacks Strategic Investor service.

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