This document analyzes S&P 500 price actions and valuations on a 3-year, 5-year, and 10-year rolling basis since 1980. It finds that when the S&P 500 is up 28.45% or less over 3 years, the worst following 3-year performance was -29.16%, with a median of +36.30%. Over 5 years at 61.59% or less, the worst was -40.93% with a median of +60.15%. The analysis concludes that stable to declining price-to-earnings growth with rebounding prices could push the S&P 500 to new highs over 2-3 years, but expected returns over 5-10 years

1. S&P 500 Price Actions & Valuation Analysis on a Rollover Basis
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The study was performed with daily S&P500 observations since January 1980. The Rollover ranges of
focuses were 3-Year, 5-Year, and 10-Year timeframe.
We have observed the specified Rollover periods, compared the daily observations to where we are
today, in terms of price action (SPX price) and valuation (P/E ratio), and processed a forward S&P500
performance expectation based on the comparison.
Before we jump into each Rollover timeframe analysis, its valid to note that the S&P500 is at the all-time
highs in terms of price, but valuation (P/E) is only slightly above the 35+ year average and median.
Today, S&P500 P/E ratio is 20.2x, while 35+ year Average is 18.84x and Median is 17.82x. But the
analysis is based on the rate of change, which gives a different perspective.
S&P 500 Price & P/E 3-Year Rollover
Today, the SPX price change and P/E on a 3-year base is:
SPX price: +28.45%
P/E ratio: +21.99%
At these current levels or lower, what was the 3-year forward performance of the S&P500?
Forward SPX Return 3-Y P/E < 21.99% SPX Price < 28.45%
Average 34.91% 37.89%
Worst -46.68% -29.16%
Best 122.13% 121.69%
Median 34.16% 36.30%
When the S&P500 is “only” up +28.45% (or less) compared to 3 years back, the worst performance of
the following 3-year period is negative -29.16%. The median is +36.30%.
When the S&P500 P/E is up +21.99% (or less) compared to 3 years back, the worst performance of the
following 3-year period is negative -46.68%. The median is +34.16%.
Note: The P/E strong upward move over the past 3 years was influenced by Central Banks stimulus
policies.
Even if the 3-y over 3-y change trend in P/E keeps falling (or stays stable), the price action of the index
can still be strong, similar to the Gap’s observed in the chart during 1998 to 2000, 2005 to 2008, and
more recently from 2012 to 2015. In all cases, the S&P500 still grew over +20% on a 3-year basis.

2. S&P 500 Price & P/E 5-Year Rollover
Today, the SPX price change and P/E on a 5-year base is:
SPX price: +61.59%
P/E ratio: +30.46%
At these current levels or lower, what was the 5-year forward performance of the S&P500?
Forward SPX Return 5-Y P/E < 30.5% SPX Price < 62.0%
Average 47.08% 60.24%
Worst -40.93% -40.93%
Best 219.91% 219.91%
Median 45.36% 60.15%

3. When the S&P500 is “only” up +62% (or less) compared to 5 years back, the worst performance of the
following 5-year period is negative -40.93%. The median is +60.15%.
When the S&P500 P/E is up +30.5% (or less) compared to 5 years back, the worst performance of the
following 5-year period is negative -40.93%. The median is +45.36%.
Note: The impact of Central Bank stimulus over the last 5 years gets smoother when compared to the
past 3 years.
Here, the Gap’s between the price change vs the P/E change are more relevant, and noticeable. The
chart suggests that we can be entering, again, in a period of stable P/E growth (even a small decline) and
crescent S&P500 growth, forming another Gap. It is a scenario typical to a mature economic expansion.

4. S&P 500 Price & P/E 10-Year Rollover
Today, the SPX price change and P/E on a 3-year base is:
SPX price: +75.24%
P/E ratio: +29.97%
At these current levels or lower, what was the 10-year forward performance of the S&P500?
Forward SPX Return 10-
Y P/E < 29.97% SPX Price < 75.24%
Average 63.14% Never
Worst -3.31% Never
Best 106.62% Never
Median 68.32% Never
The 10-year Rollover is more unique, since it catches the 2008/09 Financial Crisis. It interesting to note
that a 10-year S&P500 forward performance from 1980 to 2006 (10 years from today), the S&P500
never went up less than +84.82%.
So, today, the S&P500 up +75.24% from 10 years ago has no historically parameter. The P/E growth was
less than the current +29.97% a few observations between 1980 and 2006, and the forward 10-year
S&P500 performance when that happened, at worst, was -3.31% (table). And the Median performance
is +68.32%, or roughly the well discussed +6.5% annualized return.

5. Conclusion
Market had a strong initial recovery after the financial crisis, from depressed levels, and unprecedented
monetary stimulus. At the end of 2014, beginning of 2015, it reached high valuation and price action
levels. Since then, it has adjusted on those two metrics.
At this conjuncture, we are more likely to have a stable to declining P/E growth rate, and a price action
rebounding, short to medium term (note the 3-year worst forward return when we are this current
levels of the S&P500 compared to 3-years back, is negative -29%). A stable to lower P/E with rebounding
earnings should keep taking the US equity indexes to new highs for the next 2 to 3 years.
An investment targeting over 5 to 10 years, the scenario becomes my grim, since interest rates have
reached a historical bottom and is more likely to move up from where we are today, weighting on
equities (and high yield bonds). It is noticeable on the 10-year Rollover chart, the change of equity
performance from 1980 to 2008, and from 2008 to present. We are in an era of lower expected returns,
and US equities shouldn’t provide a higher than 5-6% annualized return over the next 10 years, at best!
Daniel Mancia Nunes All Rights Reserved ®