(1) NEW: Reconciliation Principle: Returns and Forecasts Must Add Up: Hope springs eternal… until it confronts reality. The past 17 years have led investors to challenge conventional wisdom and to seek a deeper understanding of the stock market. Crestmont’s Reconciliation Principle enables advisors and investors to peel back the cloak and see the fundamental principles that drive the market. It’s empowering! The Principle enables investors to see that the current high P/E destines the stock market to an extended period of below-average returns, but it also helps them to take the actions necessary to achieve long-run investment success.

This article explores the value of understanding and assessing the environment over your investment horizon. Market weather may be hard to predict, but market climate can be credibly determined.

(2) Earnings per share in 2016 for the S&P 500 Index was finalized at $94.55. That does reflect an increase over 2015, but it’s still below the results for 2014 and 2013. Standard and Poor's currently projects an increase for 2017 of 25.9% to $119.08. However, there's six month to go. All of the years (2011-2016) presented in the Earnings Trends chart had declines in EPS from the June forecast to year-end. The average decline was 9.5%, which would result in 2017 EPS of ~$108.

(3) The stock market increased 2.9% in the second quarter for a cumulative 8.2% gain in the first half, far exceeding normalized long-term earnings growth. Normalized P/E remains "significantly overvalued" at 29.8 (certainly above the typical range for low inflation environments).

(4) The update to the current secular bear chart (with its cumulative 226% cyclical bull surge) shows continued momentum. The chart This Secular Bear...So Far appears to show the market launching into a new bull run. From the current high level of P/E, it's unlikely that the market will sustain its gains.

(5) Volatility remains in the lowest 4% of all periods since 1950. Another way to put into perspective the ultra-low level of market volatility is to consider the VIX, the recognized index of stock market volatility. The VIX has had seven days below 10 so far this year. That’s the same number of days below 10 as all prior years combined since inception in 1990. It’s an eerie calm in the markets.