In case you're coming back from the Memorial Day holiday weekend in the U.S. with the question "Hey, are stock prices about where they should be right now?", we're happy to answer your question as follows: "Why, yes, stock prices are indeed about where they should be right now!"
As proof, here's the chart that says so, where we observe that the average change in the growth rate of stock prices as measured by the S&P 500 in May 2012 has just about converged with the long-established expected change in the growth rate of the index' underlying dividends per share that coincides with investor expectations for the fourth quarter of 2012:
We'll leave it as an exercise to our readers to divine where stock prices will go on average in June 2012. Nearly all the information you need is presented in the chart above - you just need to make an assumption about how much noise there will be in the stock market during that month!...
Political Calculations is a site that develops, applies and presents both established and cutting edge theory to the topics of investing, business and economics.
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