Valuation {03.16.15}

The S&P 500 closed at 2,053.40 which is a decline of 1.65% from 2,019.42 when we last reviewed these numbers back on 01.21.2015.  Below is our current analysis.  We are taking our earnings estimates for 2015 down significantly owing to the current strength in the dollar and the continued decline in energy earnings.  We'll throw a dollop of winter weather in the eastern US in here just for kicks.  We will use a range of $118-121 for 2015 with a $119.50 midpoint.   We also 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 $119.50 {Through 03.16.2015}

Current PE:                     17.18

Earnings Yield:                 5.85%

Dividend Yield:               1.85% {Estimated.} 

Current Expected Price Cone of Probability,   01.20.14:   1,750-2,250.  While energy has lagged the overall economy is performing quite well.  As such we will leave this unchanged at this point as we are unsure  whether investors will continue to look through the decline in earnings as long as it continues to be largely energy related.  

The current yield on the 10 year US Treasury is 2.09% and has gained 26 basis points since the last time we did this analysis.    

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.