The Updated S&P 500 Bands

The Updated S&P 500 Bands:  What is the Peak of the S&P 500?

November 28, 2016

The US indices are rallying.  Where are their peak points?  That is the question.

For the S&P 500, we currently estimate it at 2,317 or just 5% away from its peak.  The S&P 500 is actually in Euphoric Highs and due for a correction.  It is also 17% overvalued to our current valuation of the S&P 500 of 1,832.  What did we use to estimate these?  We used our updated S&P 500 Bands.


Just like with the PSEi Bands, we adopted the method of forming it with the S&P 500.  This is more reflective of the US market than the Dow Jones Industrial Average given its 500-stock composition versus the Dow’s 30.  The two main factors that form the bands are PER and the US10YTN rate.  The former is growing slowly but recovering.  The latter is on its way up as a result of Trumponomics and a potential US interest rate hike this December.  The US10YTN rate has actually gone up to 2.33% already from just 1.46% last July.

The tricky thing about the S&P 500 Bands is how Quantitative Easing (QE) artificially brought down US interest rates spanning from November 2008 to October 2014.  Unlike the PSEi Bands, we had to estimate the US10YTN rate without the effects of QE.  We currently estimate it at 3.75% and on its way to the 4% level.  In the previous S&P 500 Bands, the S&P 500 was always deviated in depressed lows which gives a misleading conclusion that it has a huge upside despite its already overheated PER of 25.46x.  For an economy recently growing at 2.9%, this PER is bloated.

The S&P 500 Bands as well as the PSEi Bands are reported in our Weekly Stock Market Report.  Soon they will also be in our dailies.  They present two markets or indices in opposite sides of the globe to give investor guidance just like how radar helps pilots fly in the darkness of night to safely reach their destination.