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"Stock prices are high because profits are high" -- Stock prices are high compared to profits, is the point. Look at the P/E ratio of the S&P 500 over time & co
by mcnamaratw 11y ago
"Stock prices are high because profits are high" --
Stock prices are high compared to profits, is the point. Look at the P/E ratio of the S&P 500 over time & compare to today's 24:1.
http://www.multpl.com/ http://www.multpl.com/
In which years was the trailing P/E of the S&P 500 higher than 24?
- forgetsusername 11y agoQuite a few. Going back to 1990 it looks average-to-slightly-high. Not sure what your point is; if you try to use P/E as a predictive metric, you're going to have a bad time. Maybe there are people out there who have a higher rate of expected earnings growth than you do, and are will to pay more for it in a period of unprecedented low interest rates?
- mcnamaratw 11y agoI was hoping the high-trailing-PE years when things looked fine (1991, 2001, 2008) might ring a bell for some readers. Those weren't favorable economic times. People who invest in stocks should probably have some inkling of what my point is after looking at that chart and thinking about what those years were like. Of course this may be a new era, and stock prices may have reached a permanently high plateau.