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By Kristin Myers, Editor-in-Chief

What's Happening Today

The earnings season train continues to chug along, and if you're the type of investor who routinely checks their portfolio, you've probably been breathing small sighs of relief as earnings have been coming in better than expected.

Less than 10% of the country's biggest companies on the S&P 500 have reported their quarterly results so far, but roughly two-thirds of them have reported better-than-expected earnings, according to research by financial data provider FactSet. That's pretty good news, considering that the annual rate of inflation is running at a 41-year high of 9.1% amid ongoing concerns about the economy potentially falling into a recession.

You might be thinking that you don't need to pay attention to earnings season, and I can understand why. But earnings are important, not only because of their impact on your portfolios, but also because they can serve as a temperature check of how the economy is doing. If companies continue to have strong quarterly earnings and report that they expect to do well in the future, it's a good sign that the economy will continue to grow strong.

This temperature check couldn't be coming at a more critical time. Next week, policymakers at the Federal Reserve will meet to decide how aggressive they will be in raising interest rates in their fight against inflation. While rate hikes would help bring down prices, they could also slow down economic growth.

- Kristin

Editors' Picks

Why Company Earnings Matter to Investors (The Balance)

Pros and Cons of Investing in Stocks (The Balance)

US Gasoline Prices Fall to Two-Month Low With Pump Pain Easing (Bloomberg)

Workers are Picking Up Extra Jobs Just to Pay for Gas and Food (The Washington Post)

Diverging Jobs Data Raise Questions About Labor Market Health (The Wall Street Journal)

Consumer Bureau to Push Banks to Refund More Victims of Scams on Zelle, Other Services (The Wall Street Journal)

Monetary Policy Tools and How They Work (The Balance)

Buying Euros as an Investment (The Balance)

Term of the Day

Price-to-Earnings (P/E) Ratio

Just as an appraiser can come out and give you an estimate of the value of your home, the price-to-earnings (P/E) ratio is a tool you can use to compare the market value of a stock to the company's earnings.

In its simplest form, a stock's P/E ratio is its price divided by its earnings per share, and can tell you whether the market is overvaluing that particular stock, based on how many people are willing to buy it, and its value over time.

The P/E ratio is one way for you to gauge if you're paying too much or too little for that stock. Generally, the lower the number, the better, because it suggests that you are paying less for every dollar of earnings that you receive.

The P/E ratio is also a metric used to help compare stocks in the same industry to one another. It is not as useful when comparing stocks across different industries or those that produce different products and services.

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Off the Charts

You may be familiar with the S&P 500, an index of 500 of the largest publicly traded companies in the U.S. But another widely cited benchmark that's less of a household name is the Russell 2000 Index. This index tracks select U.S. companies with a smaller market capitalization.

Here's a look at the total annual returns of the Russell 2000 compared to the Russell 1000 (the large-cap portion of the Russell 3000) and the S&P 500 since 2000.