Stock Market S&P 500 Fair value calculation
 

Here's S&P's S&P 500 forward GAAP earnings estimate from the S&P website:

Q2 2022: $42.53
Q3 2022: $49.23
Q4 2022: $51.25
Q1 2023: $50.87
Total: $193.88, round to $194
Current level: 4200

1) P/E 15x put the S&P 500 @ 2900
2) Assuming that the earnings are always beat,
by 5% on average due to share repurchases,
($194 x 1.05) =$204 x P/E 15 = @3100
2) Assuming that the earnings are always beat,
by 10% at the extreme due to under forecasting for an intentional beat
($194 x 1.10) =$213 x P/E 15 = @3200

Will the market go straight down to that level? No, it goes down in staggered drops and rallies, like stairs. If you assume that all information is in the market, then why is the P/E so high as compared to average growth, when inflation is elevated, there are shortages in mfg and labor?

Here is a comparison of the current market and the decline in the GFC in the 2000's. note the similarity in the stair steps down.

Don't be Irving Fisher, "Stocks have reached what looks like a permanently high plateau." any guess when he said that? Just be patient, prices will return to normal levels if not lower

Regression toward the mean...

A 2018 article: Access Denied

Irrelevant on a short term basis. It’s about money flow, algorithms and technical analysis. Earnings are a wild card in this environment. Plain old guessing

So, you trade/invest on technicals rather than fundamentals. That's great, it's certainly a valid approach and probably advisable, since you think, "earnings are a wild card". I try to incorporate both, as I have a financial background and like to use DCF models to give me some idea of corporate financial health. What are the technicals telling you? Are we in a new bull market or just a bear market rally? I strongly believe the latter.

I am inclined to pray you are wrong, but Ill bet you are right

Just remember, this is your behavioral finance:

Narrative Always Follows Price in the Markets

LOL! on the DCF though :boxing2: and yeah, I have built them for M&A purchase pricing, have seen top consultants build them, and none have actually worked on equities on a consistent basis, because they are not bonds. Its a financial theory of bond pricing taken into the equity space. Bond future cash payments are known, face value return, not so much, but one binary variable probability basis. Equities, not so much, bond cash flows don't have mgmt changes, product obsolescence, basically human corporate management survival and competitiveness, and greed.

but if it works for you :beer3: . . . technical analysis is usable short term, fundamentals longer term and both still subject to the uncertainties of the future. I have 20 plus years of daily market and fundamental data, and so far only 1 fairly repeatable pattern, which is based on options expiration timing. Only happens once or twice a month, but i have made money on the daily trade many times.

And everyday I realize its not worth working any more, but coachk won't let me quit, because if I quit, she quits. . and that's at least 2 years away.. . .

future former finance manager

Function over Form
 

I don’t make it so hard………..

I read about companies that get my attention for some reason.

I make sure I understand, generally, what those companies do.

I check on a few numbers and trends.

I have to feel comfortable that they can continue to pay a quarterly dividend — and they almost always have to have a very long history of increasing that dividend annually.

I let some patience and a little intuition into my choices. (Yes. I am a woman. :) )

Then…….I wait…….until those on my shopping list take a bit of hit.

I bought a few in July.

Happy so far……

BUT, even so, after decades of doing it like this, of course, I know I do not always pick winners. (Yeah, like I said — I am a woman, so I don’t go around talking about how I never lose at this game. In fact, I don’t go around talking about it at all, except on TOTV, anonymously.)

And, sooooo, even if those July buys fall a little in share price, I feel pretty sure those companies will continue to send me money every quarter.

Old fashioned style of investing? Maybe.

But, so far, it ain’t broke, nor am I — yet. :)

Buy ‘n’ Hold Boomer

"but if it works for you". It has! It's why I was able to retire at 47 and move to TV and play softball and golf all day.

I don't want to debate the usefulness of DCF models, as it's only part of a starting point when and if I look at individual companies. 90% of my equity portfolio is in ETF's and has been for probably the last 10 years.

So, what does "20 plus years of daily market" analysis tell you? Are we in a new bull market or just a bear market rally?

it doesn't tell me anything about the current market "regime", cause I only look for trading setups, where I can make a very short term trade to add alpha to the portfolio, or pick the turn on the 39 days average market wave cycle.

since I have been in 401K cash/bonds for about 1 year, and IRA similar but more cash less bonds, and more equities, I am still waiting for a fairer value before going long on a 60-80% level. . .

which is why I occasionally post about fair value for the SP500, for those like @manabouttown to hold onto his cash for a bit while we continue to stair step down, like the chart indicates. . . or for anyone who wants to reduce market risk within their portfolios. . .

future former finance guy

intuition is basically one of the 4 personality traits per Myers Briggs, none of the 4 personality types are limited to women, its just on a generalized gender basis, women are a higher proportion of the total, like about 2/3 of the population with the typical women traits.

so don't flatter yourself about intuition and being a woman, in the N category of INTP, my intuition is above 90% for the trait, tested several different times with different types of tests by my employer.

As far as your style, if it works for you, :0000000000luvmyhors

and that should be love the horse you ride!

future former finance guy. . .

At the end of April I sold a large commercial real estate property I had held for almost 40 years. It was a great time to sell as cap rates were very low. Since then I have proceeded to dip my toe into the water buying a little stock now and then. About 25% of the sales proceeds went into mostly buying a few more shares of stocks I knew well and had held a long time. Then...drum roll...short term T-bills moved into the 3% range and I have put almost all the rest of it into them. I will need to pay taxes on my gain 4/15/23 and a sufficient amount of them to pay my tax bill will mature prior to that date. As I see it the market has a far higher probability of going down for a while than going up so I feel defensive.

"For much of the last 12 years, cash yielded nothing, and allocating to it represented a deliberate choice to pay an often high price for insurance. But times change. Cash yields have risen sharply at a time when Morgan Stanley’s forecasts for global cross-asset returns are low, squeezed by tighter policy if economic data continue to hold up, and higher risk premiums if the data turn down. The market is giving investors the opportunity to earn ~3% on safe, liquid T-bills, or ~5% on safe (but less liquid) short-duration CLO AAAs, and somewhere in-between for other AAA securitized paper that has cheapened as banks have faced RWA constraints. These aren’t the most exciting investments, but sometimes it makes sense to take what the market gives you."

From: Morgan Stanley: Cash Looks "Relatively Attractive" Right Now | ZeroHedge

The Market will bottom on September 21, 2022.

Just some thoughts...

PE at 15... why? That might be an assumption for the market of yesteryear. Lots of things have changed. 18 and 21 are common numbers. At $4200 is 21.

6 month projection... Why? TOTV readers are long-term investors. And the market is forward looking one to five years.

Don't count on stock buy backs. The Brandon Bill taxes buy backs. Businesses will change their behavior.

I never did understand relying on charts of past data. Business is always evolving and very much moves on emotional behavior, especially in the short term. Maybe that behavior is reflected in past charts, I don't know. I really think the biggest pressure on the market right now is expectations for the upcoming election.

I am an MBA and MSIB (MS International Business)... not looking to argue, but explore ideas.

Nice to know there are so many people outperforming here in the villages. Apparently even really smart people who do this full time with big research teams can't beat the indexes yet everybody on this thread seems to be making a killing.

Access Denied

Joe

Which posters claimed they were outperforming the market?

This thread, at least as I see it, is addressed to what happens next as P/Es are rather high.