Stock Market Valuation

On Jan. 1, I did a post on stock market valuation. At the time I claimed that stocks were about 10% too cheap. This is a good time to reevaluate.

A number of things have changed, including:
1. The S&P 500 has risen almost 10%.
2. Corporate profits have grown five percentage points above my estimates.
3. Treasury yields have moved up from 4.7% to 4.9%.
4. The worldwide political environment has gotten slightly better, particularly in West Europe.
5. US inflation and growth have come down.
6. We had a major worldwide panic in late Feb/early Mar that had no lasting effect.

Going back to the "Fed" model that I attached in Jan., the market is still on the cheap side, but not as clearly undervalued as it was. Still, I would say it's supportive.

The stock market is about "fairly valued" against US real estate, crude (click on graph 2), and world markets. Nothing to worry about there.

The market is cheap against inflation (This is presented like the Fed model, click on 1. I believe this was Abby Joseph Cohen's fav. chart.) and corporate bonds. As the news tells us daily, it also cheap against the private markets.

Contrary opinion indicators continue to be very bullish. These include rising short interest (at all time records), continued flows into alternative assets, and much much more! One of my current favorites is the TickerSense blogger poll, which shows financial bloggers are solidly bearish. Some folks never learn.

So I'll have to say that the market still looks quite good. The major cloud would be a move in rates over 5%. We'll cross that bridge when and if we get there.