SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Pastimes : Ask Mohan about the Market
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: edward miller who wrote (13696)2/1/1998 11:39:00 PM
From: studdog  Read Replies (1) of 18056
 
Thanks for outlining your thoughts on current market valuation. TO help me make investment decisions,I have chosen to use the model put forward by the fed and popularized by Dr. Yardeni. It basically states that stock market valuation has historically followed a model pretty closely that simply says: fair value of S&P 500 = one year forward earnings expectations for stocks in the index, divided by the yield of the 10 year bond. IBES has forward earnings estimates at about $50. so, 50/5.5 = 910. THis suggests an overvaluation of about 9% which is not too outrageous. For comparison, the S&P was more than 30% overvalued in 1987 prior to the crash, and about 25% overvalued this past August prior to the turmoil this year. In both instances fair valuation was reached again by a combination of a drop in interest rates, a rise in earnings estimates and a fall in stock prices.

So, For my simple mind, the future direction of the market is dependant on rates and earnings estimates. If you think earnings estimates will be cut, then the current mild overvaluation becomes much more significant. Unless of course yields drop. It seems to me that the inexorable drop in rates over the last several years has really fueled the current high multiples. At the same time earnings have grown greatly, compounding the gains in the market. Some folks much smarter than me are expecting further falls in yields.

Karl
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2025 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News