With the S&P 500 flirting around the 800 level today after plunging to a low of 676.53 at market close on 9 March 2009, we thought we'd take this opportunity to graphically point something out:
The two points highlighted on the chart are the values of the accelerations in the rate of growth of both stock prices and expected future trailing year dividends per share that directly correlate exactly with the closing value of the S&P 500 on 9 March 2009 of 676.53 and the midday value for the index on 23 March 2009 of 799.50. All the other points for stock prices represent the acceleration in the rate of growth of the average monthly value of the S&P 500. Also, please note the date for when the futures data for the S&P 500's dividends per share was extracted....
Given that the expected future level of dividends per share are those available as of 4 March 2009, we'll confirm that today's market action is not due to the latest banking bailout proposal from the U.S. Treasury, despite Reuters' claims to the contrary.
It is instead being driven by the expectation that the current economic crisis will not be getting any worse than already expected. Stock prices are simply going where the expected growth rate of dividends per share some 9-10 months into the future are driving them.
As for where stock prices will be heading, see here.
Update 4:35 PM EDT: And we're there! The S&P looks to have closed above 822.95, right within our target range. Look for it to bounce around and near this level for a bit.... (Link will include data through 23 March 2009 when Yahoo! Finance updates their database for the S&P 500's closing value.)
Labels: dividends, forecasting, SP 500
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Closing values for previous trading day.
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