S&P500 Fair Value

Eddy Elfenbein at CrossingWallstreet sums it up:

"For 2009, the S&P 500 will make around $55 to $60 a share. For 2010, earnings will probably be around $75 a share. For 2011, and now it’s starting to become hard to forecast, Wall Street sees earnings at $92 a share.

If that’s correct, then the stock market is still pretty inexpensive. At 15 times earnings, $92 a share translates to 1380 for the index by the end of 2011. If we discount that by 8% to today (I get 8% by adding a 3% premium to 5% which is about where AAA corporates are), we get 1160."

At Hussman Funds Bill Hester appears less optimistic arguing that analysts now expect margins to recover to peak level, an unlikely scenario in a lower growth environment.