Newsflash: Even After Covid-19 The Market Is Not Cheap


From January 31, 2020 through March 31, 2020 the market as measured by the S&P 500 fell approximately 20%. As a result, I published an article on March 26, 2020 titled “It’s A Buyers’ Market – Choose Quality If You’re Scared: 20 A-Rated, Low-Debt Blue Chips To Consider” where I implied that the market as measured by the S&P 500 had gone from being overvalued to undervalued. Based on the facts available to me at that time, I feel that my assumptions were correct as stated. The following FAST Graph on the S&P 500 as of March 23, 2020 supported that view. Note that earnings were forecast to grow 7% in 2020 followed by an additional 12% by 2021.

However, as time has passed analysts have had the opportunity to assess the Covid-19 potential damage to the S&P 500’s earnings. Current estimates call for earnings to drop 19% for 2020, followed by a 27% increase for 2021, and finally an additional 13% increase for 2022. Although the forecast past 2020 suggests a strong recovery, earnings still do not get back to what the forecasts were prior to Covid–19. Consequently, because of this updated forecast, I no longer believe the S&P 500 is currently undervalued. Instead, I would argue that based on fundamental value, the market is fully valued to slightly overvalued today as evidenced by the following graphic.