Standard & Poor's 500 Index companies will earn 18 percent more this year than in 2010, according to the average estimate of more than 9,000 analysts compiled by Bloomberg. Higher profits haven't stopped the gauge from falling 6.8 percent since April 29, pushing valuations to the cheapest levels in 26 years. Even if companies posted no growth, price-earnings ratios would be lower than on 96 percent of days in the past two decades.

And:

At 34 days, the decrease is the second longest since the bull market began. The 16 percent tumble from April to July 2010 lasted 49 days, Bloomberg data show. This year's retreat has coincided with a decline in predictions for 2011 gross domestic product growth to 2.6 percent from 3.2 percent, according to the median estimate of 83 economists surveyed by Bloomberg.
Losses since April have pushed the price of the S&P 500 to 14.5 times the past year's earnings, compared with the average of 20.5 since June 1991, according to Bloomberg data. The gauge is valued at 8.7 times cash flow, cheaper than in 81 percent of occasions since 1998. The gauge is priced at 2.1 times book value, or assets minus liabilities, lower than it has traded 90 percent of the time since 1995.

And:

Analysts are boosting profit forecasts even with the global economy showing signs of weakness. S&P 500 earnings may rise to $99.61 a share in 2011 from $84.58 last year and $61.52 in 2009, according to data compiled by Bloomberg. That's an increase from the forecast of $95.37 on Jan. 3 and $98.70 on April 29, the data show.
Should stocks stay at current prices and the analyst prediction come true, the S&P 500 would trade at 12.8 times income on Dec. 31, the lowest level since 1985 except for the six months after Lehman Brothers Holdings Inc.'s bankruptcy in September 2008 and nine months in the late 1980s, according to Bloomberg data. Companies in the S&P 500 are forecast to earn $24.31 this quarter, up from $24.16 at the start of April.

David Fuller's view There is more but I will stop here before my 'old school' Graham & Dodd subscribers suspect that I have either lost my mind, or worse, am being deliberately provocative.

I can assure you that it is certainly not the latter but perhaps some of us, including Bloomberg staff writers, are weary of the daily Greek Chorus.

On valuation comments in the article above, I think the analysts' estimates of earnings are too high. More importantly, I do not see much merit in comparing today's valuations on Wall Street with the last decade or two which was arguably the most overvalued period in my lifetime.

For the record, the most undervalued period during my financial career to date was 2Q 1982, when the S&P 500 Index yielded 6.21%. Today, it yields 1.95%.

Since statistics soon cause one's eyes to glaze over, I will stop there and summarise by saying that to the extent valuations have improved over the last decade, I think this is part of the secular valuation contraction that Fullermoney has often mentioned for over a decade.

This does not mean that we are equity bears, although the description - "corrective phase" - was frequently repeated in our daily Audios over the last two months.

For the record, I think US stock market valuations are reasonable against the background of near zero short-term interest rates, assuming that deflation is not the problem, as I do. What I like most about leading US multinational companies is the overall strength of their balance sheets.

Generally, I think global stock markets are still on course for a decent 4Q rally, continuing into at least 1Q 2012. In the short term, there is some evidence that the technical rally which I mentioned prematurely last Tuesday has commenced. Two important western indices - S&P 500 (weekly & daily) and DAX (weekly & daily) continue to show relative strength and have steadied following tests of their rising 200-day moving averages.

More importantly in terms of global leadership, Indonesia (weekly & daily) and Malaysia (weekly & daily) remain very firm, with JCI's upward dynamic halting a small pullback. The ASEAN stock markets led following 2008's crash and led following last year's correction. If/when Indonesia and Malaysia lead a sustained upward break, as we saw this time last year, that will bode well for many other stock markets. (See also last Friday's Comment on stock markets and the NDX 100 below.)