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jkm, ok, i went back to the link in an earlier post and downloaded an excel spreadsheet that is supposedly the companion to "Irrational Exuberance", called "ie_data". i believe that is the one that you are referring to. i see your concern with that data because there seems to be some type of running average going on with the column labeled "earnings", which if true, would result in a lag between earnings and price that would just be an artifact of the averaging. but that is not the data that i used - i used the center for research in security prices for data. you can tell that by looking at my chart - the analysis of the entire database, 1871-2001 (red line) does not have any lag to speak of while the post 1945 data does. the relationship of the two time periods stands.

the thesis remains that since 1945, market prices have consistently led economic profits and this is backed up by the conference board's analysis of the different components of their leading economic indicator, of which the S&P500 is one of the largest weightings. two pertinent points along that line of reasoning are: [1] the degree to which the markets have evolved over time makes using the older data (pre-1945) as historical analogue problematic, and [2] prices can, and probably will, begin moving up despite a weak near term economic outlook. the latter point is particularly relevant today.

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