Here is the SP500 valuation calculation:
using the # from the S&P site:
spglobal.com
First, we calculate 12 mo forward SPX eps using 2002 eps of $51.41 and 2003 eps of $60.35 as a weighted average of 7.5 (out of 12) mos of 2002 that are remaining and 4.5 (out of 12) mos of 2003:
(7.5/12)(51.41) + (4.5/12)(60.35)=$54.76
Then, we calculate the Fair Value of SPX as the ratio of 12 mo forward SPX eps divided by the 10 year bond yield:
54.76/5.20=1,053.
So, $1,053 represents the Fair Value of SPX using the Fed valuation model. Since SPX is now 1,070, SPX is
1,070/1,053= 1.016 times higher than its Fair Value or 1.6% overvalued.
However, with today's change in S&P calculations of SPX eps Fed model will show SPX to be very substantially overvalued.
In addition, COMPQ has been and probably is as much as 25-30% or more overvalued even assuming a higher growth multiple.
The Sept 01 rally started from SPX 17% undervalued,
Feb 02 rally was from SPX about 3% undervalued, and on 5/7/02 we were about 2% undervalued. |
