fbpx

Are U.S. Stocks Cheap Based On 12-Month Forward PE For The S&P 500?

(Last Updated On: April 23, 2012)

Are U.S. Stocks Cheap Based On 12-Month Forward PE For The S&P 500?
Are U.S. Stocks Cheap Based On 12-Month Forward PE For The S&P 500? Part I seekingalpha.comBullish analysts are claiming that U.S. stocks are “cheap” based on 12-month forward PEs. Bearish analysts actually claim that stocks are expensive on a proper accounting of the historical average 12-month forward PE, and/or…
–Good points on the difficulty of using 12-month forward earnings estimates to determine under/over valuation of the Stock Market. However, I would agree with Hussman that a much better approach is to simply use Shiller’s CAPE as a valuation tool and forget about notoriously inaccurate future earnings estimates. As I’m sure you’ve seen on his site, Hussman has provident numerous expositions of this approach and shown that over a 10 year time frame a CAPE valuation approach works very well! The other interesting conclusion is that in a 1 to 5 year time frame, valuation is of relatively little use in estimating market performance – in other words, valuation matters in the long run, but in the short and intermediate term, not so much.
And as Hussman points out, the market is currently priced to deliver only around 4% nominal returns over the next 10 years – which is not enough considering the prospective risk and volatility of owning stocks. So you can put me with Hussman in the camp of observers that believe the market is OVERVALUED.

NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!

Subscribe For Latest Updates

Sign up to best of business news, informed analysis and opinions on what matters to you.
Invalid email address
We promise not to spam you. You can unsubscribe at any time.

NOTE!

Check NEW site on stock forex and ETF analysis and automation

Scroll to Top