Attention: your browser does not have JavaScript enabled!

For full functionality of this site it is necessary to enable JavaScript.
Click Here to learn how to enable JavaScript.

decision point logo
  • Home
  • About Us
  • Subscriptions
  • Blogs and Links
New around here? Subscribe now! Forgot password?

Manage Account

  • HOME
  • ABOUT US
  • SUBSCRIPTIONS
  • BLOGS AND LINKS

S&P 500 2019 Q3 EARNINGS: Market Is Way Overvalued

Published on January 14, 2020 at 05:24 PM by Carl Swenlin

DecisionPoint Alert

The S&P 500 preliminary earnings for 2019 Q3 are available, and based upon GAAP (Generally Accepted Accounting Principals) earnings, the S&P 500 is beyond overvalued. The following chart shows us the normal value range of the S&P 500 Index, indicating where the S&P 500 would have to be in order to have an overvalued P/E of 20 (red line), a fairly valued P/E of 15 (blue line) or an undervalued P/E of 10 (green line). There are three hash marks on the right side of the chart, which show where the range markers are projected be at the end of 2020 Q3. Since 2016, price has been well above the traditional value range, with the exception of the late 2018 price decline (which lowered the P/E to 19). Based upon estimated future earnings, the future value range (2020 Q3) is shown by the hash marks on the right. As we can see, the S&P 500 exceeds the top of the normal range by no small amount.


As investors we want to accomplish two basic things: (1) Determine the trend and condition of the market, and (2) select stocks that will ride that tide. The DecisionPoint Alert helps with the first step, and DecisionPoint Diamonds helps with the second. Go to DecisionPoint.com and SUBSCRIBE TODAY! (Charter Subscriber Discounts Available!)


Historically, price has usually remained below the top of the normal value range (red line); however, since about 1998, it has not been uncommon for price to exceed normal overvalue levels. This may be the "new normal," but, really, it's not normal. The market hasn't been undervalued since 1984.

I use GAAP earnings as the reference for this article. Operating Earnings is the favorite of most of Wall Street, because it omits essential elements of real accounting to make the numbers look better. For me, a former accountant, using operating earnings is, to state it kindly, a form of cognitive dissonance.

The table below shows how earnings are expected to improve going forward, but the drop in P/E shown is only possible if price doesn't rise significantly. In the best case shown (2020 Q3), the market will be slightly above the top of the normal value range, but this depends upon price being about the same level as it is now. Not likely.








The following table shows where the colored bands will be based upon earnings estimates.





CONCLUSION: Historically, overvalued conditions leave the market vulnerable for a large correction or bear market, but P/E ratios are not a precise timing tool. They are just a way to see if fundamentals are favorable or not. These earnings charts are intended to provide a historical context for current earnings and to demonstrate that overvaluation is not your friend.


Technical Analysis is a windsock, not a crystal ball.


Helpful DecisionPoint Links:

DecisionPoint Alert Chart List

DecisionPoint Golden Cross/Silver Cross Index Chart List

DecisionPoint Sector Chart List

DecisionPoint Chart Gallery

Trend Models

Price Momentum Oscillator (PMO)

On Balance Volume

Swenlin Trading Oscillators (STO-B and STO-V)

ITBM and ITVM

SCTR Ranking



Blog Archive
Previous Article
Next Article

Contact Us

Email: support@decisionpoint.com

© Proudly created by Alamo City Marketing Solutions

Socialize With Us

DecisionPoint logo

DecisionPoint is not a registered investment advisor. Investment and trading decisions are solely your responsibility. None of the DecisionPoint newsletters or web site materials should be interpreted as a recommendation or solicitation to buy or sell any security or to take any specific action.

DecisionPoint does not represent or endorse the accuracy or reliability of any of the information, content, or advertisements contained on, distributed through, linked from, downloaded or otherwise accessed from any of the services contained on this web site or in our newsletters, nor the quality of any products, information or other materials displayed, purchased, or obtained by you as a result of an advertisement or any other information or offer in or in connection with the materials. You hereby acknowledge that any reliance upon any Materials shall be at your sole risk. It is your responsibility to verify from other sources, such as your broker, critical elements of a decision to act. DecisionPoint reserves the right, in its sole discretion and without any obligation, to make improvements/changes to, or to correct any error or omissions in any portion of the Materials.

THE SERVICE AND THE MATERIALS ARE PROVIDED BY DECISIONPOINT ON AN "AS IS" BASIS, AND DECISIONPOINT EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE SERVICE OR ANY MATERIALS AND PRODUCTS. IN NO EVENT SHALL DECISIONPOINT BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES OF ANY KIND WHATSOEVER WITH RESPECT TO THE SERVICE, THE MATERIALS AND THE PRODUCTS.