Wednesday, July 22, 2009

Equity Market Valuation

Having now entered the 2nd quarter earnings season (37 of the S&P 500 companies have reported so far), it seems like the right time to review valuations:

S & P 500 closed at 954.58 yesterday

My fair value opinion: 726.97

The index needs to drop 23.84% to compel me to buy.

At 726.97, the earnings yield would equal the long term average of 4.795%

The earnings yield at current levels is 3.652%.

The earnings yield calculations are based on 2010 numbers: using S & P's forecasts, I arrived at a figure of $34.86.


MK said...

Another note: I used S & P's forecast for "As Reported Earnings" in this post.

JK said...

I am too naive to understand how seasonality plays here. Do people hire more in Summer... Or do jobless people claim less because it is summer ?

Can you please explain. ?