Can’t Touch This – S&P 500 Fair Value Based On Q3 Earnings

Sitting at 93% earnings in the books, the S&P 500 index remains elevated above a fair market value.

Trading around 1250, the S&P 500 bolsters a 22% premium over fair value based on a nominal and CPI adjusted 950.

The following table illustrates Fair Market Value for the S&P 500 using timeframes of 5, 10, 15, 20, and 30 year average earnings (full report available here.)


Based on both a nominal and CPI-adjusted basis, these two index calculations nearly match.   Included in the chart is a snapshot of the S&P as of this writing, roughly 1250 and how the valuation compares to the data back in September.

This quarterly earnings study uses both nominal and CPI-adjusted data (popularised by Professor Robert Shiller).  A primer on the study is available here.  As one can determine from the table, regardless of time horizon for investors, the S&P 500 remains overvalued.  When viewing the chart below for the combined Fair Market Value – readers can clearly see that the S&P 500 will ALWAYS return to a fair value (and can remain undervalued for a period of time):


The following chart displays a recent study concerning our Dollar and the impact upon earnings.


As the chart depicts, adjusting for the impact of dollar devaluation, the earnings would be in the $60.00 area.

Additionally, the next chart depicts adjusting the S&P 500 Index by the value of the dollar.


Predicated upon the dollar-adjustment, the S&P 500 Index would be closer to 850 rather than 1250.  Hopefully, these charts provide a quick snapshot of current valuations of the S&P 500 Index based on several methods.

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