S&P 500 Price Correction Coming?


S&P 500 Price Correction Coming?

Investors have seen a tremendous market increase since the dark lows of 2009. It has been an interesting run since that time – navigating a unique and unprecedented Federal Reserve policy. As another quarter closes and the U.S. markets look relatively flat YTD… It’s a great time for reflection.

Price Pays

205% return from the depths of those lows coupled with $4T+ of Federal Reserve balance sheet and zero interest rate policy! This reminds me of the bizzaro world Seinfeld episode. That crazy Gene and Feldman.

205% SPX Return
Style Returns since 2009


I prefer to use the valuation method from Dr. Robert Shiller – Cyclically Adjusted Price to Earnings Ratio (CAPE). The current level is approximately 27.5 with a S&p 500 close of about $2,066. The 5 year average is 22.7. I wondered if we were to revert to the 5 year mean, what type of price correction would the S&P 500 see? It would see approximately a 22.46% correction. I also find it interesting that (per JP Morgan) we are at the 25 year average. Historically speaking we’re at parity for valuations, but in shorter term duration we’re over valued? Ironically the dot-com bubble CAPE was about 44.

CAPE & Valuations




Here are the respective S&P 500 sectors; same valuations:





Things seemingly look a little bleak out there. Wage growth is low, unemployment is reasonable (sort of), inflation is low, market valuations are on the high side, Fed holding $4T balance sheet and sitting at ZIRP. Damn Gina!

Whatever your investment strategy is… Make sure that you stay diversified based on the risk profile you have in place. As I’ve indicated in an earlier post, reducing volatility will yield you more cash-money in your pocket!!!

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