The S&P 500 closed yesterday at 2,636.20 which is now a decline of about 1.5% for the year and represents a decline of of 10% from its highs back in late August without factoring in dividends. This also represents a decline of about 4.7% from when we last reviewed these numbers back on June 21, 2018. Below is our current valuation analysis. We are currently using a mid-point $175.5 estimate for 2019 S&P 500 earnings and a rolling four quarter estimate of 191.50 out to 2020. Yes believe it or not the stock market is starting to focus on 2020 earnings now. 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 $175.50. {Year End 2019}
Current PE: 15.02% {PE has declined from previous review of 17.84}
Earnings Yield: 6.65% {up from previous review of 5.60%}
Dividend Yield: 1.92% {Yield has advanced from previous 1.81%}
Current Expected Price Cone of Probability {COP}: 2,750-2,850 for 2018. 2,900-3,100 for 2019.
Rolling Four Quarter Estimate for the S&P 500, Our Midpoint Estimate $193.50:
Current PE: 13.766%
Earnings Yield: 7.27%
Dividend Yield: 1.92% {Estimated}
{Note: The numbers directly above for the Current PE and the Earnings Yield should be highlighted in green but for some reason the system won't let me make that change. I apologize for any confusion this causes.}
The current yield on the 10-year US Treasury is 3.07%. That is an increase from our last update when the 10-year US Treasury was yielding 2.93%.
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 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.
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