The S&P 500 is Undervalued by 8.4%

Brock Value Latest Ten Years
US GDP (Est) Corp Bond Yield S&P 500 Brock Value Undervaluation
$21.265t 3.31% 3212.23 2941.76 8.4%
These are the latest numbers, updated to June 28. With US GDP at an estimated $21.265 trillion and medium-term corporate bonds yielding 3.31%, the intrinsic value of the S&P 500 index as measured by Brock Value is 3212.23.
 

By comparison, the S&P closed at 2941.76 on June 28, 8.4% below Brock Value or fair value. Click the chart to enlarge.

Understanding Brock Value charts
Brock Value is the long-sought answer to the question: what is the market worth? BV is a valuation metric with just two inputs: GDP and interest rates. Compared to questionable old-school metrics (and even popular ones like Shiller’s CAPE), BV provides more reliable measurements, especially at critical turning points.
brock value 1960 to present

The red and green lines fence in the normal range of the market, one-third of a standard deviation from BV, the white line. Click image to enlarge.
Valuation Return
Above Red Line 1.2%
Fair Value 7.2%
Below Green Line 10.5%
Median 10-year compound annual real total returns, 1919-2006

The red and green lines found on most of the BV charts on this site indicate the normal range of the market. Measuring one-third of a standard deviation above and below BV (the white line), these guidelines serve as boundaries, beyond which valuation is extreme in one direction or the other. When the market (the yellow line) trades above the red line, it is overvalued. When this happens, my analysis shows that prospective (ten-year) returns are lower than average. Conversely, when the market trades below the green line, it is undervalued and ten-year returns are higher than average.

4 responses to “The S&P 500 is Undervalued by 8.44”

  1. John E. Calkins

    Your Brock Value Charts are great — please keep them going.

  2. Jim

    Mr. Brock – please keep this thing going…very valuable!

  3. Jay

    Hi Mr. Brock,
    Why have you decided to use the yield on corporate bonds instead of treasury bonds? From my understanding, corporate yields are destined to go up even higher as the economy starts to recess as it just became more risky to rely on a company to pay you back where as treasury yields will go down as a ‘flight to safety’. So as long as society remains stable and the government collects money through taxes, it will survive. Did you want the risk of bankruptcy of corporations prioritized over the returns of the risk-free alternative?

Your Thoughts?