Recent market correction has stocks testing near record undervaluation

I have updated my data series that calculates a fair value for the S&P 500 relative to the 10 year Treasury rate.  We are at a level in the S&P 500 that implies a 56% UNDER valuation.  This is highly unusual.  An undervaluation in excess of 50% has only occurred in 5 quarters prior to the current measurement going back to 1970.  All of these quarters have occurred since the Lehman panic of 2008.  While the number of occurrences is limited, the market has been up 80% of the time after such deep undervaluation.  The market has gained an average 10.4% sequentially in 4 of the 5 quarters when the market has been undervalued by more than 50%.  This size of sequential gain is over 5X greater than the average quarterly sequential gain since 1990.  Jeb Terry, Sr. June 3, 2011

Source: Standard & Poors.  St. Louis Fed

Aberdeen Investment Management – a guide service for micro-cap technology investment

Leave a Reply

Your email address will not be published. Required fields are marked *