what’s more at the top? More of the top.
Last week all the indices hit all time high. How far is far enough?
when P/E is constant, then the risk premium is constant.
P/E has been hovering for S&P Index around 20.5 for the last and half year (DEC 2015 to June 2017) . earning increased from 100 dollars to 116 dollars around 16%
So mostly the gain in S&P came from the gain in real earnings of the companies!
So assuming just the earning to grow by 10% (very reasonable..just the growth %) and P/E = 20.5 as constant
then S&P would be (116+10% of 116) * 20.5= 2615 – a gain of 144 points from today.
the leading economic indicators – % change has been positive for the last 10 months!
around 65 % of stock market is about its 75 days moving average.
Now value of companies according to the theory is based on discounted value of the cash flow. because of low interest rates companies can borrow much with little interest paid. Hence expansion, hence earnings growth!
“The market can stay irrational longer than you can stay solvent.” – John Maynard Keynes