Valuation {10.21.15}

I thought we could gain a bit of perspective by checking out the valuation of the S&P 500 after its current decline.   As yesterday's close, the S&P 500 is trading at 1,904.  That is a decline of around 6% from it's highs  and is a 4% decline from when we last reviewed this subject back on 09.13.2014.  Below is our current analysis.  Please note that the forward PE for the index is now based on year end 2015 results.  From now on I am gong to use a simple color code to give you some reference for these numbers.  Green will indicate that the valuation on the index on a strictly historical basis has become more attractive from the last time we did this review.  Red will indicate the opposite. 

Our Midpoint S&P 500 Earnings Estimate of $118.75 {Through 12.31.2014}

Current PE:                     16.03

Earnings Yield:               6.23%

Dividend Yield:               1.85%

Rolling Four Quarter Estimate  $129.34 {Through 10.18.2014 via Fundamentalis.com}

Current PE:                   14.72

Earnings Yield:               6.79%

Dividend Yield:              1.85%

Current Expected Price Cone of Probability,   10.21.14:   1,700-2,100.

The current yield on the 10 year US Treasury is 2.19%.  

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, although positions can change at any time.  

I have to be out tomorrow so the next post here will be on Thursday.