S&P 500 operating earnings increased 13.9% in the third quarter over last year, but are still heading to a record year, Standard & Poor’s reports.

“While the earnings growth has slowed relative to the first and second quarter 2004 increases, the 13.9% third quarter (vs the third quarter of 2003) gain continues the momentum that has produced record earnings,” says Howard Silverblatt, equity market analyst at Standard & Poor’s. “For the fourth quarter, Standard & Poor’s is estimating a 15.5% earnings gain for the S&P 500, which would result in a 21.5% increase for 2004.”

Standard & Poor’s data also shows that the 12-month operating P/E for the S&P 500 is 17.9 vs the March 2000 P/E of 27.8. “With earnings-per-share expected to create a record high for 2004 and the market still off 27% from its March 2000 highs, aggregate P/E ratios have become more reasonable,” says Silverblatt. “Investors are now paying much less for growth, as P/Es are more in line with historical values.”

The initial full year 2005 earnings projections are also expected to set a record. However, the pace is expected to slow considerably, with the year projected to post an 8.7% gain. “Materials will lead the way in 2005 with an expected 22.9% gain, with Energy expected to decline 11.8% and Telecommunications to come in slightly lower than 2004 with a 0.4% decline,” says Silverblatt. “Health Care will be a volatile sector, with specific expenditures being heavily influenced by the results of the November election.”