S&P500, what's a fair level?
What’s a fair price for this index going forward?
In the past real GDP growth averaged 3.25%, with a trailing P/E on the S&P500 averaging 15.5X.
The index closed the month at 19.9X trailing P/E (Shiller P/E is very high at 25). The thing is, it’s not the past anymore, we need to look at what’s on the horizon for the United States. Well, GDP growth has slowed with the average for the last 20 years being 2.4%. Today the US has used up every desperate stimulus trick in the book, and can barely hold 2%.
Let’s be optimistic and say they can actually do 2% real into perpetuity. That means nominal is probably 4%, and corporate earnings grow by say 2%? Why would anyone pay 20X for that?
So what’s it really worth? I say S&P500 = 1387 is a fair value, which would be 14X. And that seems generous, only slightly below “the good old days”, which are long gone. Am I low, high, why?