Garzarelli of Huntington, N.Y., runs the Forward Garzarelli U.S. Equity fund and is best known for correctly predicting the 1987 plunge of the stock market. She projects the market by tracking monetary policy, economic cycles, market valuation and investor sentiment. In its simplest form, finding market value is similar to evaluating a single stock. If earnings are poor and price is high, a stock might well be viewed as overvalued, as in the case of many technology stocks during 1999 and early 2000. But discovering whether the index is fairly valued is another matter.
Investors often talk, of course, about historic market valuation.
The historic average is often cited as around 15. But that blanket comparison doesn't hold up since the key variable is interest rates, said Hill. Interest rates were at record highs in the early 1980s. But today, they are at long-term lows. Generally, higher interest rates push fair market valuations lower, and vice-versa.