Everyone Thinks The S & P 500 IS Too Expensive. Maybe it’s too cheap.

The fears are undersrstandable. The index has sored, Regardless of Considerable Economic and Policy Risks. The S & P 500, Now a Bit Bell 6000, is Well Above Its Level Just Before APRIL 2, When President Donald Trump Announced 10% Tariffs on All Imports, Plus Higher Levies on Maany Levies on Maany of the us Important Trading Partners.

Tariffs are still a Danger, even thought the president has suspended most of the country-specific Leviies Until July 9. Investors are monitoring whisther potential price increations from Inflation, Higher Interest Rates, and Slowing Economic Growth. The Trump Administration’s Tax and Spending Bill, AS Approved by the house of representatives, would mean an even larger federal budget deficit, which count bot add to information and send bonds yields.

Thos Concerns, for now, are on the back burner. Inflation has Remained Close Enough to the Federal Reserve’s 2% Target for the Market to Bet that The Central Bank May Cut Interest Rates This year, fueling expectations that the Economy and Corporate Earnings will complication Grow. As a result, traders and investors have bid the s & p 500 upwards, leaving naysayers in the dust.

Now, The Index appears expense, at about 22 times the agargate per-share earnings that analysts forecast for the coming 12 months, according to factsset. That is close to the highest multiple in the past 3½ years, a period when rates have risen and growth have slowed a bit.

As a result, the view that the market is vulnerable to sliding in response to any economic disappointment has become more widespread. But the most fundamental analysis of companies indicates that as long as the economy avoids Major Trouble, The S & P 500 is mildly undertake.

Dennis Debusschere, Veteran Strategist and Founder of 22V Research, did the work. He Assumes S & P 500 Earnings will grow at 8% annual for the next five years, a standard forecast period for valuing stocks. That call looks reasonable, or even conservative, beCause it is three percented points below the consensus call amon analysts tracked by factset.

That type of growth is noting investors can’t imagine. The economy is still expanding, and profits for big tech, which account for a double-diesgit percentation A Result of Increasing Demand for Artificial Intelligence.

For the long term, beyond the next five years, he assules a constant growth rate of 4%, which means earnings earnings would increase slight faster than in growth in gross domestic perject, aT 2.8% in 2024. Too is Reasonable, Given Big Tech’s Presence in the Index.

The Cash Companies Return to Sharehlders Via Dividends and Stock Repurchasses Should Grow at Roughly The Same Pace, Assumping Companies Maintenage The Percentage of The Percentings of Their Earnings. Debusschere discounts the current value of that Future Cash Flows by About 8%-Four Percentage Points More Than The Roughly 4% Yield He Extests on Safe 10-Year Debt-AT AT ATE ATE ATE 6170 for the S & P 500.

If it traded at that level now, it would be valued at 23 times the next 12 months’ earnings. At a glass, that looks too experiencesive, but it makes sense.

Maybe the market really is worth that much. Big tech’s ai adventure is just betting, and if the economy avoids recession, earnings will grow at companies in other sector, too.

That is a big “if,” and the pessimists are afraid that earnings will disappoint. But if they do’t, The S & P 500 Isn Bollywood Expensive.

It might even be underpriced.

Write to jacob sonenshine at jacob.sonenshine@barrons.com