I came across a podcast (The Compound on Youtube) where they were discussing market valuation, and Tony Dwyer had mentioned that if interest rates (on the 10Y Treasury) are between 1-3%, a P/E of 20x on the S&P is fair. That would mean SPY at 440 is around 20x Forward P/E currently (estimates for earnings of 220 on the S&P this year according to Yardeni Research)
If so, I presume a 3-5% interest rate would put the fair value of the S&P anywhere between 15-19 x P/E.
Does this make sense to anyone else? If so, then we can presume the current dips/volatility are the market effectively repricing to a lower P/E given that interest rates are rising.
Personally this helps me view things rationally, and gives me a better understanding of what's going on, rather than fear mongering of the next 50%+ crash.
Let me know your thoughts on this!
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