Content provided by J.J. Schenkelberg CLS, CFA, Senior Portfolio Manager

Someone at CLS (I won’t name any names) told a story once about coming home from the airport very late at night, shortly after the Dodge overpass was built. On a deserted Dodge road he found himself climbing higher next to orange cones. Not knowing for sure if the road was officially open he began slowing down as the top of the hill approached, wary of the road ending and his car falling off the end. Creeping closer to the end the road kept going, and going. Sure enough, he got to the top of the hill and was able to keep going along the new stretch of road to the other side.

I’m reminded of this story as I think about the market these days. As we’ve approached recent highs in the market we’ve lowered risk in portfolios and become wary of a major pullback. However, the market keeps going, and going. Does it make sense? Actually, from a fundamental perspective it does. 2013 S&P 500 estimated earnings per share is $111.27. Based on these earnings, at a reasonable market P/E the S&P 500 would be priced at 1,669 (another 6.8% above current level).

Furthermore, 2014 estimated earnings per share is $124.82. At 15x earnings, the S&P 500 would be 1,872 (19.8% above the current level).

Of course, we all know that earnings don’t always stay stable. However, the current environment is far from as frothy as it was in 2002 and 2008. It is prudent to remain cautious in today’s environment. But maybe, just maybe, this road can keep on going. . .

The Standard & Poor’s 500 is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the stock market. You cannot invest directly in an index.

The views expressed herein are exclusively those of CLS Investments, LLC, are not meant as investment advice, and are subject to change. No part of this report may be reproduced in any manner without the express written permission of CLS Investments, LLC. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not a guide to future performance.

0676-CLS-3/20/2013