Valuation {03.08.16}

The S&P 500 closed yesterday at 1,993.60 which is a decline of 2.48% for this year and is a decline of 4.12% from a market close of 2,079.36 from when we  last reviewed these numbers back on November 2, 2015.    Below is our current valuation analysis.  We are using a current earnings range of $121-124 with a mid-point of $122.75 on the S&P 500 for 2016.  It is likely that this estimate is too high right now but we will wait for the end of the 1st quarter to make any revisions to our numbers.    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 $122.75. {Year End 2016}

Current PE:                     16.24 {down from previous review of 17.47}
Earnings Yield:                 6.15% {up from previous review of 5.72%
Dividend Yield:                2.17% {Estimated and up from previous review of 1.96%}

Current Expected Price Cone of Probability {COP}:   1,700-2,150.  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. 

Rolling Four Quarter Estimate for the S&P 500, Our Estimate $122.75.*:

Current PE:                     Same as above

Earnings Yield:               Same as above. 

The current yield on the 10 year US Treasury is 1.85%.  That is a decline of 32 basis points since the last time we did this review.    

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.

Next post will be Thursday.