We're certainly winding down 2013, like it or not. With the outstanding stock market performance, we sort of hate to put it to bed. We started the year with so much investor concern, and as we end the year, we've speculated that investors are just now entering the phase when they feel a little relief, but their "hope" for the future is still iffy. Their feelings seem pretty confident when you see the S&P 500 has moved up from 1425 to Friday's level of 1775 - a gain of almost 25%.
Our Valuation Gauge is based on three factors - the 12-month forward earnings estimate (normalized), the inflation rate, and a blend of bond yields. Since bond yields are often distorted due to Fed action, we also put a cap in there. As we look back on December 2012, we see that our Valuation Gauge was showing the S&P 500 to be extremely undervalued.
Today, we continue to see our gauge at the extremely undervalued level (19.61% undervalued). After such a banner year for stocks, I'm sure skepticism is very high; however, I'm looking forward to see what will be in store for the stock market in 2014.
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