Valuation

With the 1st Quarter in the books and earnings season kicking in, I thought I'd revisit our valuation models for the S&P 500.  I will use our midpoint earnings estimate of $118.75 on the S&P 500 and introduce an analysis based on the four quarter rolling earnings estimates on the same index.  These earnings estimates go out through March 31, 2015.  That estimate per Thomson Reuters and via Fundamentalis.com is $123.04.

Our Midpoint Estimate $118.75 {Through 12.31.2014}

Current PE:                   15.41

Earnings Yield:               6.48%

Dividend Yield:              1.86%

Current Expected Price Cone of Probability, 12.31.2014:   1,625-2,000.

Rolling Four Quarter Estimate  $123.04 {Through 03.31.2014}

Current PE:                   14.88

Earnings Yield:               6.71%

Dividend Yield:              1.86%

Current Expected Price Cone of Probability,   03.31.2014:   1,750-2,100.

The current yield on the 10 year US Treasury is 2.65%.  

We have lowered our estimated price ranges for 2014 from those published in our Winter Letter to Clients.  I will talk about this in a future post.  I also suspect that those March 31, 2015 numbers are high.

The Cone of Probability is our current assessment of the trading range within which we think stocks have the potential to trade during the described time period.  It is a probabilistic assessment based on a many factors.  Some of these inputs are: Earnings estimates, also are those estimates rising or falling, dividend yield, earnings yield and the current yield on the US 10 year treasury.  This is not an exhaustive list of all of the variables that are used in creating the cone.  The Cone of Probability is used solely for analytical purposes.  It will fluctuate with market conditions and changes to the data inputs.  Index prices can and have traded outside of the range of the cone.  The data supplied when we discuss the cone is for informational use only.  There should be no expectation that this price range will be accurate and there are no guarantees that this information is correct.

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