S&P PE NOW BACK ABOVE FAIR VALUE

After the recent market rebound the S&P 500 valuation has risen from below my estimated fair value to just over the top of the fair value band.

It is important to remember that much of the rebound in the S&P PE  is due to weaker earnings.  In the second quarter earnings are falling at double digit rates. But if second quarter real GDP is falling at a 40% to 50% rate earnings estimated are still too high.

Wall Street says do, not fight the Fed.  One measure of Fed policy is money supply growth and as the chart shows MZM ( zero maturity growth) is surging to near record highs.  This implies that the market PE is going to continue to rise and it should pull the overall market with it despite the fact that earnings estimates are probably too high.

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