|
|
 |
 |
 |
 |
   |
Is the Market Overvalued?It depends on what you think about earnings and interest rates. Suppose you think the S&P 500 companies will earn $50 a share in the next 12 months. If the 30-year U.S. Treasury yielded 5.5%, the fair value for the S&P would be 1037, about 4.5% below the current level, according to Morgan Stanley Dean Witter. That indicates that even well into a correction, the S&P 500 is overvalued. But if you assume higher earnings growth or lower interest rates, stocks could be cheap.
OPERATING EARNINGS
FOR THE S&P 500
OVER NEXT 12 MONTHS YIELD ON 30-YEAR U.S. TREASURY BOND
5% 5.5% 6%
$47 1087 986 898
48 1106 1003 914
49 1126 1020 929
50 1145 1037 945
51 1164 1055 960
52 1183 1072 975
53 1202 1089 991
DATA: MORGAN STANLEY DEAN WITTER, BUSINESS WEEK
|
Updated Aug. 6, 1998 by bwwebmaster
Copyright 1998, by The McGraw-Hill Companies Inc. All rights reserved.
Terms of Use