The latest forecast from my model of the S&P 500 index for the first quarter of 2015 indicates that the market continues to outrun corporate profits. The pattern is similar to that of the late 1990s. When the market turns, it will fall below the level that profits would indicate as investors become pessimistic and afraid. It's likely that any January effect this next quarter will be small as the market corrects for profits.
When the market gets ahead of the forecast it means that the P/E ratio is expanding because investors are willing to pay more for the same level of profits. Some of that optimism comes from chasing yields as more bond holders grow weary of earning about one percent in real terms on bonds. Other buying comes from speculation about what the Fed will do.