Valuation {05.19.15}

The S&P 500 closed yesterday at 2,127.97 which is a gain of 3.53% from 2,127.97 when we last reviewed these numbers back on March 16, 2015.   Below is our current analysis.  We are leaving our 2015 earnings estimates unchanged at this point.  We are using 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 {Year End 2015}

Current PE:                     17.81

Earnings Yield:                 5.61%

Dividend Yield:               1.89% {Estimated.} 

Current Expected Price Cone of Probability {COP}:   1,750-2,250.  While energy price and the dollar have been headwinds for earnings other economic data is supportive of evidence showing that the economy is still growing.  As such we will leave the COP unchanged.  

Rolling Four Quarter Estimate for the S&P 500, Our Estimate $122.75*, {Thomson Reuters $122.05}:

Current PE:                     17.33

Earnings Yield:                 5.76%

*We are using our current estimate as we believe that earnings from the energy sector will be better than the market expects and the dollar is becoming less of a headwind for corporations.  The change in our view is not material to earnings analysis.  

The current yield on the 10 year US Treasury is 2.29% and has gained 20 basis points since the last time we did this analysis.    

The Cone of Probability {COP} 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.