S&P 500 Valuation: Is the Final Upside Leg Still Ahead?S&P 500 IndexTVC:SPXSwissquoteWhile the "permabears" have been predicting a 50% stock market crash every single week for months (or even years in the most extreme cases), similar to those of 2001 and 2008, the S&P 500 Index has continued to extend its long-term bullish trend. At the beginning of August, the index once again reached a new all-time high by breaking above 7,650 points on the S&P 500 futures contract. It is worth noting that the E-mini S&P 500 futures contract is the most heavily traded futures contract in the world in terms of trading volume. In reality, trying to classify financial analysts and market forecasters into one of two camps—"permabear" versus "permabull"—is not a productive approach. The chart below displays the daily Japanese candlesticks of the S&P 500 futures contract. The S&P 500 reached a fresh all-time high at the beginning of August. Belonging to either of these camps means having a market bias, and having a bias can lead investors to drift too far away from the fundamental and technical factors that ultimately drive the market's primary trend. A far better approach is to remain realistic, pragmatic, and methodical. Let me give you an example. The S&P 500 has just posted another all-time high at the beginning of August. A permabear will tell you that the stock market crash is now closer than ever—a narrative they have been repeating for years. A permabull, on the other hand, may be pleased because the long-term uptrend continues to generate gains, but may also become overly optimistic regarding future price targets. A realistic and methodical analyst instead determines price targets by relying on fundamental and technical criteria. So, how high could the S&P 500 climb over the coming months? (Keep in mind that short-term corrections will always occur.) If the market were simply to return to its historical valuation peak, we can answer this question using the Shiller P/E and the Forward P/E. The current Shiller P/E stands at 41, while its historical record, reached in 1999, is 43. This suggests that the S&P 500 could still have roughly 5% upside potential. The current Forward P/E is 20, while the historical record is 23, implying approximately 15% additional upside potential for the S&P 500. This is neither a permabull nor a permabear conclusion—it is simply a pragmatic one. The chart below presents two versions of the Shiller P/E used to value the S&P 500 Index: the traditional version at the top and a normalized Z-score version below. In both cases, the upside target would simply be a return to the historical peak reached in December 1999. The chart below illustrates the valuation of the S&P 500 based on the Forward P/E, which compares the market price to expected corporate earnings. The Forward P/E currently stands at 20, while the historical record is 23, implying approximately 15% upside potential for the S&P 500 Index. DISCLAIMER: This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions. This content is not intended to manipulate the market or encourage any specific financial behavior. Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. 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