Friday, May 29, 2009

S&P500 Valuation snapshot

AlphaNinja - So after the S&P500 has bounced 34% from its March lows, I'm trading with a cautious outlook. I think the index is cheap on a long-term basis, but is due for a near-term pullback. That said, lets look at the index's valuation.







About 10% upside to the analysts' average stock price target. I expect that the negativity has overshot to the downside just as people were previously too giddy on the way up....





Price-to-sales (which I like to use because it doesn't fluctuate as wildly as price-to-earnings) is about 1, well off the 10 year average of 1.8.....




And PE ratio's are WAY off their historical averages, which to me is more an example of how out of whack things were for most of this decade, rather than an example of how cheap they are now. Still, the low single-digit trailing and forward PE's auger for pretty good returns going forward....



(Disclosure - I'm about neutral in terms of exposure, and am short the SP500 by way of the SDS)

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