Despite overvaluation concerns, the rise in the S&P 500 Index appears to be earnings driven and not speculative. The RPF Model shows that the S&P 500 is undervalued by about 7%, narrowing from the 30% undervaluation estimate that I reported in my September 28, 2010 article and the 20% that I reported on November 8, 2010. This suggests continued opportunities for investors, corporate buybacks, and M&A.
The narrowing of the gap was caused by rising Treasury yields, which drive down predicted levels coupled with an increase in the Index. While continued increases in earnings in 2011 should be expected to drive the market higher, investors should keep a cautious eye on interest rates.
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Paz Vega Rebecca Mader Eva Green Lauren Conrad Arielle Kebbel
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