The good news is the support level on the S&P500 of 1820 held yesterday and is poised to open up today. The market is trading at about 15 times this year and 13.5 times next year’s earnings. At yesterday’s close, the market is now reasonably valued. If one takes energy out of the S&P calculations, earnings would look brighter.
The question for investors is: What is a reasonable valuation? In the graph below, we took the technical resistance levels and divided them by the estimated 2016 and 2017 S&P earnings to get a multiple. The ten year average is 14.1 times. If you believe a recession is coming then one would be expecting a much a lower multiple. We would love to see your comments on this.
S&P 500 resistance levels 2016 P/E 2017P/E
S&P 500 at 2134 (2015 High) 17.8x 15.8x
S&P 500 at 1950 16.25 14.4x
S&P 500 at 1867 15.5x 13.8x
S&P 500 at 1820 15.1x 13.5x
S&P 500 at 1740 14.5x 12.9x
S&P 500 at 1687 14x 12.5x
S&P 500 at 1560 13x 11.5x