S&P 500 Intrinsic Value Update by Todd Sullivan, ValuePlays
The intrinsic value of the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), sitting near current levels illustrates that the current markets levels in no way depict a market that is “frothy” or anywhere near overvalued. When one begins to wonder if the market is currently “bubbly” one only need go back to the last two bubbles (tech, housing) to see the S&P 500 level was ~100% in excess of its intrinsic value, that would be S&P 3900 at today’s intrinsic value levels.
I am in no way claiming we are going there, but what I am saying is we need to get a whole lot closer to that level than where we are now before we even begin talking about overvalued or bubble-like market levels. There will always be pockets of irrational valuation in any market but it is a huge mistake to the extrapolate that pocket to the market as a whole.
The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) vs. S&P 500 Intrinsic Value Index is shown with Sept month end values.
Momentum continues to rule the market. This should continue till economic activity peaks in 5yrs-7yrs based on my current estimates. The Chemical Activity Barometer, Single Family Home Sales and Vehicle Sales will reflect this peak some 18mos-24mos before the S&P 500.
The S&P 500 driven by Momentum Investors are likely to drive market prices to a premium perhaps as much as 50%-100% excess over the SP500 Intrinsic Value Index. How high is not predictable, but when the peak occurs has always be driven by peaks in economic activity. At market peaks, prices are determined by market psychology at the time and Momentum Traders.