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Boston Wealth Management
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  • Fair Value of S&P 500 0 comments
    May 28, 2009 8:26 PM | about stocks: SPY

    Standard & Poor’s currently projects 2009 earnings on S&P of $54.15.

    1.  Over the 20 year period to 2008, the index traded at an average of 19.4 times earnings
    2. That 20 year period includes a 12 yr bubble; taking a longer term average of around 15 times earnings
    3. 1890 to 2009 historical average for the S&P 500 PE multiple has been 16.37 times the trough earnings
    So applying this data, fair value of S&P 500 today is as follows based on:
    1.   20 year period:    19.4 x 54.15 =   1,050
    2.   20 year w/o  12 yr bubble: 15 x 54.15 = 812
    3.   Historical:  16.37 x 54.15 = 886   C... today at 906.83 
    Bear Argument:  I would say we are at fair value today, and have some room to drop to 812 if considering the last 20 years without the 12 year bubble.
    Bull Case:   Happy days are back! Just like the great 20 year period, so have room to go up to 1050.  That is where you are hearing all this giddy talk of S&P 500 to 1050 from!

    Disclosure:  Long SPY

    Stocks: SPY
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