Valuation {06.18.13}

The S&P 500 closed last night at 1,639 down about 3% from its highs.  At 1,639 the index trades with roughly a 15.4 price to earnings ratio {PE} and a 6.5% earnings yield on our year end midpoint earnings estimate of $106.50.  Our year end 2014 earnings estimate for the S&P 500 is currently between $112-114.  If we use a midpoint of $113 for 2014, then the S&P trades at a 14.5 PE and a 6.9% earnings yield.  The ten year Treasury trades with a 2.18% yield.  The S&P 500 currently trades within our expected cone of probability  of 1,490-1,700 although it is above our original midpoint estimate of 1,625.

I had discussed back in April about the possibility of raising my earnings estimate for 2013.  I will wait until we see 2nd quarter earnings before making any changes.   It does not particularly bother me that we are currently trading above our midpoint target price, especially if earnings come in better than expected for the quarter.  However, there is less margin for error at current trading levels.  Earnings season starts just after the 4th of July so we'll begin to get a better feel for things around then.

*Long ETFs related to the S&P 500 in client and personal accounts.