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DECISION POINT
OVERVIEW OF MARKET FUNDAMENTALS
Friday 11/20/2009
*************************** S&P 500 FUNDAMENTALS ****************************
The real P/E for the S&P 500 is based on "as reported" or GAAP earnings
(calculated using Generally Accepted Accounting Principles), and it is the
standard for historical earnings comparisons. The normal range for the GAAP
P/E ratio is between 10 (undervalued) to 20 (overvalued).
Market cheerleaders invariably use "pro forma" or "operating earnings,"
which exclude some expenses and are deceptively optimistic. They are
useless and should be ignored.
The following are the most recently reported and projected twelve-month
trailing (TMT) earnings, quarterly earnings, and price/earnings ratios (P/Es)
according to Standard and Poors.
Est Est Est Est
2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2
TMT P/E Ratio (GAAP).......: 145.30 85.10 23.50 20.90 20.90
TMT P/E Ratio (Operating)..: 27.40 27.50 19.30 17.40 16.20
TMT Earnings (GAAP)........: 7.51 12.83 46.50 52.25 52.16
TMT Earnings (Operating)...: 39.79 39.64 56.49 62.83 67.50
QTRLY Earnings (GAAP)......: 13.51 15.05 10.42 13.27 13.42
QTRLY Earnings (Operating).: 13.81 15.81 16.76 16.45 18.48
For a more thorough discussion of earnings and other fundamentals
click here.
Based upon projected GAAP earnings the following would be the approximate
S&P 500 values at the cardinal points of the normal historical value range.
They are calculated simply by multiplying the GAAP EPS by 10, 15, and 20:
Est Est Est Est
2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2
Undervalued (SPX if P/E = 10): 75 128 465 523 522
Fair Value (SPX if P/E = 15): 113 192 698 784 782
Overvalued (SPX if P/E = 20): 150 257 930 1045 1043
******************* COMPARISON OF MAJOR INDEXES ***************************
SPX OEX NDX DJIA DJTA DJUA
Price/Earnings Ratio........: 145 49 45 18 13 D
Dividend Yield..............: 2.2% 1.7% 0.4% 2.7% 4.6% ----
*********************** DIVIDEND VALUE RANGE ANALYSIS ***********************
The yield for the DJIA, DJTA and the S&P 500 has historically moved
between a range of 3% (overvalued) and 6% (undervalued). The normal yield
range for the DJUA is between 3% and 12%. Decision Point expresses this
range as an RVR (Relative to Value Range) value of between 0 (undervalued)
and 100 (overvalued). Values can fall outside that range, and, when they
do, indicate even greater extremes of market valuation.
S&P 500 DJIA DJTA *DJUA
----------------------------------- ------- ----- ----- -----
Current Closing Price.............: 1091 10318 372 46
Current Yield.....................: 2.2% 2.7% 1.9% 4.6%
Current P/E.......................: 145 18 D 13
Current Payout Ratio..............: 3.2 37.7 0.6
Current RVR.......................: 127 112 136 83
Price at 1.5% Yield..............: 1600 18572 471 141
Price at 3.0% Yield (RVR 100)....: 800 9286 236 71
Price at 4.0% Yield..............: 600 6965 177 53
Price at 5.0% Yield..............: 480 5572 141 42
Price at 6.0% Yield (RVR 0).....: 400 4643 118 35
Price at 8.0% Yield..............: 300 3482 88 26
Price at 12.0% Yield (RVR 0 - DJUA).........................: 18
*********************** MISCELLANEOUS MARKET MEASURES ***********************
DJIA Yield.............: 2.65% Bearish (Norm Rng: 3% - 6%)
DJIA P/E...............: 17.90 Bearish (Norm Rng: 10 - 20)
T-Bill Yield/DJIA Yield: 0.00 Bullish (Norm Rng: 1.6 - 2.0)
Price to Dividend Ratio: 37.74 Bearish (Should be less than 30)
*****************************************************************************
The chart below offers perspective regarding current S&P 500 P/E and yield
relative to normal historical ranges.
*****************************************************************************
HUSSMAN P/E
The chart beloww calculates the SPX P/E by dividing the SPX price by Prior
Peak Earnings, a method developed by John Hussman, manager of the Hussman
Funds. (hussmanfunds.com) It orients valuations to the long-term
rising trend of earnings growth as defined by peak-to-peak earnings.
*****************************************************************************
End of MARKET FUNDAMENTALS REPORT for Friday 11/20/09
Copyright 2009 Decision Point.
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