1.Forecast corporate profits for the coming period for an index such as the S&P 500.2.Derive an estimate for the aggregate P/E ratio using long-term interest ratesBased on the relationship between the

1.Forecast corporate profits for the coming period for an index such as the S&P 500.

2.Derive an estimate for the aggregate P/E ratio using long-term interest rates

Based on the relationship between the ‘earnings yield’ or E/P ratio for the S&P 500 and the yield on 10 year Treasuries

3.Product of the two forecasts is the estimate of the end-of-period level of the market

Using earnings multiplier approach; forecast the S&p 500 and the Japanese Nikkei index for next year