S&P Price-to-Earnings Ratio Says Market is Still 70% Overpriced

If you are choosing to stay in the stock market right now because of any of the following reasons…

  1. It is poised to bounce back
  2. You don’t want to close out losing positions
  3. Stocks are cheap right now

…then the simplicity of the following information may shock you.

Last week the earnings of the S&P dropped to $28.75, down from the previous week’s $45.95. A year ago it was at $78.80. Today’s level of earnings is roughly where the S&P 500 was in 1995 at which time the S&P was selling for around $450.  Today it’s selling at $770 which puts it at a P/E (price-to-earnings ratio) of 27. That’s right – a P/E of twenty seven! In a time where every “expert” says stocks are cheap they are 70% more expensive than the last time earnings were this low.

P/E doesn’t necessarily mean much of anything in and of itself. But historically stock market promoters have pointed to P/E as a sales tool. If you’ve paid close attention to P/E in the past, then you probably know what to do when you are holding something that has a P/E of 27 and is in a downward trend. Hint: It starts with an “s”.

Get your head out of the emotional gambler’s game, start learning about investing!

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Comments

  1. Great Article… However, this is not what is coming from the presidential administriction or what they are telling the sheeple. The administriction is telling them that now is the best time to gamble their futures in the stock market. Sounds like an act of desperation from the administriction…. Or is this a case again where they are trying to tell us what we want to hear instead of the truth.

    This is a great quote from the article:

    ABC: “What you’re now seeing is … profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long-term perspective on it,” the president said on a day that trading continued to hover under 7,000.

    What the hell? What’s the President doing talking PE ratios?

    And more importantly, what does he think of Siegel’s approach to calculating PEs? Inquiring minds want to know.

    March 3rd:
    Barack Obama Says Stock Valuations Are Compelling

    http://www.businessinsider.com/barack-obama-says-stock-valuations-are-compelling-2009-3

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