The right market valuation?

Posted: Feb 12, 2016 9:15:32 AM

The good news is the support level on the S&P500 of 1820  held yesterday and is poised to open up today. The market is trading at about 15 times this year and 13.5 times next year’s earnings. At yesterday’s close, the market is now reasonably valued. If one takes energy out of the S&P calculations, earnings would look brighter.

The question for investors is: What is a reasonable valuation? In the graph below, we took the technical resistance levels and divided them by the estimated 2016 and 2017 S&P earnings to get a multiple. The ten year average is 14.1 times. If you believe a recession is coming then one would be expecting a much a lower multiple. We would love to see your comments on this.

S&P 500 resistance levels                             2016 P/E               2017P/E

S&P 500 at 2134 (2015 High)                         17.8x                     15.8x

S&P 500 at 1950                                                16.25                     14.4x

S&P 500 at 1867                                                15.5x                     13.8x

S&P 500 at 1820                                                15.1x                     13.5x

S&P 500 at 1740                                                14.5x                     12.9x

S&P 500 at 1687                                                14x                         12.5x

S&P 500 at 1560                                                13x                         11.5x

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