Estimate Ranges 2016-2017.

{From our most recent investment letter to clients.}

"The S&P 500, a broad measure of the US stock market, currently trades at 15 times forward earnings assumptions. Stocks have historically traded in a price to earnings valuation range between 14-16 times their forward estimated earnings.  In regards to the current economic environment, we think that investors need to accept that a higher level of higher level of volatility may be here to stay.  We are using an initial estimated earnings range on the S&P 500 for 2016 of $121-124 with a mid-point of $122.75 for this year.  Our current 2016 price cone of probability is 1,700 to 2,150 on the S&P 500.  That is appreciation potential from current price levels of roughly 10-14% when accounting for dividends.  We introduce a preliminary estimate of 2017 earnings ranging between $125.50-130 for the S&P 500.  Please note that there is no guarantee that any of these estimates will be met.  The Cone of Probability is our current assessment of the price range within which we think stocks have the potential to trade during a described period, in this case calendar year 2016.  It is a probabilistic assessment based on many inputs.  Some of these are: earnings estimates, and whether those estimates are rising or falling, dividend yield, earnings yield and the current yield on the US 10 year treasury.   It is not a valuation model as we use this solely for analytical purposes.  It will fluctuate with market conditions and changes to the data inputs.  Index prices can and have traded in the past outside of its range."

Back Monday with some more charts.

*Long ETFs related to the S&P 500 in client and personal account.  Please note these positions can change at any time.