Historic S&P500 P/E Ratio Chart
- Posted by JC Parets
- on October 14th, 2011
Here is a great chart sent to me this morning by Chartoftheday.com:
Notice how historically the P/E ratio in the S&P500 would to peak in the low to mid-20s. This went on for almost 100 years until market participants were willing to pay much higher multiples for these silly dot-coms. But this was nothing compared with the peak in P/E during the financial crisis. Stocks got slaughtered as the market priced in future earnings declines. Talk about unprecedented levels.
We are now back at normal P/Es where some might even say that the market is cheap. But can it get cheaper? Of course. The problem here is the “E” in P/E. We don’t know what the earnings are going to look like. All we have are estimates – and they’re always getting revised. If we have a recession, and some could argue that we’re already in one, then you could see the typical 30% haircut in S&P earnings. Where would that put P/E ratios when you ask yourself what multiple you would put on those “earnings”?
Just a little food for thought going into the weekend.
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J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He earned the Chartered Market Technician designation (CMT) in 2008 and now actively manages money incorporating Technical Analysis and Behavioral Finance into his practice More
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