Valuation {06.20.18}

The S&P 500 closed yesterday at 2,765.90 which is a gain of about 3.5%  for the year without factoring in dividends. This represents a gain of 10.43% from a market close of 2,504.60 from when we  last reviewed these numbers back on September 19, 2017.   Below is our current valuation analysis.    We are currently using a mid-point $155 estimate for 2018 S&P 500 earnings and a rolling four quarter estimate of 163.    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 $155. {Year End 2018}

Current PE:                       17.84% {PE has declined from previous review of 19.04}
Earnings Yield:                 5.60% {up from previous review of 5.25%}
Dividend Yield:                1.81% {Yield has declined from previous  1.90%}

Current Expected Price Cone of Probability {COP}:   2,450-2,975.  

Rolling Four Quarter Estimate for the S&P 500, Our Estimate $163:

Current PE:                     16.97% 

Earnings Yield:                 5.90% 
Dividend Yield:                1.75% {Estimated}

The current yield on the 10-year US Treasury is 2.93%.  That is an increase from our last update when the 10-year US Treasury was yielding 2.23%.  

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   Currently short SPY and ETFs related to the S&P 500 in a personal account related to an options strategy not employed in client accounts.  We reserve the right to change these investments without notice on this blog or via any other form of verbal, written or electronic communication.

Back early next week.