S&P 500 Remains Overvalued For Almost Every Metric

The S&P 500 earnings table shows that the S&P index remains overvalued in just about every metric being tracked. 

Whether using Professor Robert Shiller’s popular (and not updated) cyclically adjusted price to earnings ratio for 10 years or any of the other time frames used, the range for overvaluation remains elevated.

Of special interest, the  earnings estimates from S&P also show that earnings will peak in 2011 at around $97.00 and will not grow at all throughout 2012. 

Couple this with the latest Z.1 Fed data showing non-financial business profits declining (no typo) and this may explain why the S&P 500 earnings explosion (recovery) in the last 2 years may be closer to the end than beginning.

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Photo: Chris Turner

For a closer look at this table and the long term historical relationships between multiple time horizons, zip over to here for the final 15 page quarterly report. (http://www.scribd.com/doc/52456387/CFMV-Q4-10-Final)Readers would be interested to see the difference between the oft-quoted, never questioned Shiller chart and simply using nominal numbers.  The table above clearly shows a 17 point difference in 10 year Equivalent S&P index prices and the chart below shows the historical contextual difference between the numbers.

As one can see, the difference between the two sets just do not warrant subjecting the original data to a CPI adjustment.

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Photo: Chris Turner

Although some economists would vehemently disagree, most traders do not follow a CPI Adjusted Index. However, in the report, the charts clearly show the very close similarities between using nominal and CPI adjustments for each time frame.

Additionally, the combined fair market value (which uses sentiment from current price, the price to earnings average of all time periods, year over year earnings growth, and monthly PE averages) results in the following chart. 

As the chart shows the fair market value at 867.57, the S&P 500 would have to decline by 30% to reach that number (using Decembers average daily closes throughout the month).

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Photo: Chris Turner

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