RE: Valuation
In my opinion, the S&P500 forward earnings estimate of $50.70 is too high. My guess is $49 or maybe even less.
So, fair value of S&P 500 = $49.00/.0538 = 911
Earnings could be less than $49, but bond yields could also be less than 0.0538. Also, as we've seen in the recent past, the S&P500 could trade above fair valuation levels.
All in all, I believe the US market as a whole is slightly overvalued now, but not enough to sell core holdings and pay taxes on capital gains. I believe there are market segments (e.g., semiconductor equipment stocks) that are undervalued or, at the very least, fairly valued.
As you said, an economic meltdown could cause earnings to plummet. However, I think that S&P500 earnings of $47 to $49 is a reasonable (conservative) assumption.
Best wishes,
I2 |
