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While the indicator resembles a moving average, the S&P projected price tracks the S&P 500 average of monthly closes price relatively well. The calculation involves using an average Price to Earnings ratio for the same time period and multiplying that by the average earnings (for the mathematically oriented, insert the word “mean” into the “average” spots). To extend the projection out to December 2015, we use the average earnings growth using 1989 to present quarter over quarter change in growth.
However, one must be leery using “earnings forecast” because these are normally downwardly revised and exogenous events (such as we saw in 2008) may dramatically change earnings.
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