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.)

TurnerChart1

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):

TurnerChart1

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

TurnerChart1

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.

TurnerChart1

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.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.