What History is Telling Us (by Boston Wealth)

On this Veteran's Day, I present a picture of a true American Hero, Mortie, last on the left.

Historically at bear market bottoms in 1982, 1987, 1990 and 2002, a pattern emerged.  We had a familiar 34% P/E market multiple expansion lasting ten months every single time after the nadir.  So applying that to this years market, we get from using a trough P/E multiple of 10.5 in March 2009 and increasing by 34% gets us to a 14.1 multiple for this ten month duration from March 2009 to the beginning of 2010.

In a slower growth environment, the typical trough P/E ratio is more likely to be 8 to 10.

As such using top-down operating EPS estimates of 81 for 2010 and a 14.1 multiple gets us to 1142 on the S&P 500 by year end. 

Comparing to the bullish scenario that I outlined here with the S&P 500 at 1180 by year end, it would be a fair assumption to say that the S&P 500 should end the year somewhere between 1140 and 1180.

I get my data from here:  http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_500/2,3,2,2,0,0,0,0,0,1,5,0,0,0,0,0.html

Click on the link that says: S&P 500 Earnings (Operating, As Reported) and Estimate Report, includes Divisors and Aggregates, and Dividends