Monday, April 24, 2017

Valuation {04.24.17}

The S&P 500 closed yesterday at 2,348.70 which is a gain of around 4.9%  for the year without factoring in dividends. This represents a gain of 2.20% from a market close of 2,298.30 from when we  last reviewed these numbers back on January 25, 2017.  Below is our current valuation analysis.  We are still using a current earnings range of $130-133 with a mid-point of $131.50 on the S&P 500 for 2017.  We will work on revising these numbers as we get a clearer picture of 1st quarter earnings results.  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.  Black means unchanged.
Our Midpoint S&P 500 Earnings Estimate of $131.50. {Year End 2017}

Current PE:                     17.86% {PE has advanced from previous review of 17.33}
Earnings Yield:                 5.59% {down from previous review of 5.76%}
Dividend Yield:                1.90% {Estimated and down from previous of 2.06%}

Current Expected Price Cone of Probability {COP}:   1,950-2,500. {Unchanged} 

Rolling Four Quarter Estimate for the S&P 500, Our Estimate $135.05:

Current PE:                     17.39% 
Earnings Yield:                 5.74% 
Dividend Yield:                2.06% {Estimated}

The current yield on the 10 year US Treasury is 2.23%.  That is a decrease of 27 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.