There are times when avoiding losses is far more important than looking for gains.
As the debate continues between what the Federal Reserve says it will do and what the market thinks the Federal Reserve will do, there is one inescapable conclusion we must consider: no matter how you look at the world, and regardless of your expectations for the economy and the Fed, stocks are not cheap at current levels.
Let’s look at the numbers, and where to find the real bargains…
According to the latest issue of Barron’s current issue, the price-to-earnings ratio (P/E) of the S&P 500 is 22.
Noted economist Ed Yardeni uses the old-fashioned rule of 20 to reverse-engineer a projected price-to-earnings ratio of just 13.5 based on current conditions. The Rule states that the result of the market PE + CPI growth rate must be under 20 for stocks to be undervalued. Currently, the rule of 20 calculation is 28.76. Multiplying 13.5 times the most optimistic forecast for 2023 earnings gives us an index target of just 3,307.
My own valuation analysis gives me a fair value for the S&P 500 of around…
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