The Market’s P/E Ratio Is Lower Now Than It Was Most of the Time from 1991 to 2010

One of the paradoxes of this market is that stocks have climbed higher even as earnings estimates have come down. Consider that the S&P 500’s earnings multiple is up nearly 30% since the market’s low nearly one year ago.

I think part of the reason for the increased valuation is that the economic uncertainty has started to fade. The Federal Reserve’s move last week probably helped clear up some of that uncertainty.

What’s interesting is that despite the higher valuations, the S&P 500’s Price/Earnings Ratio is still lower now that it was at any point from March 1995 to October 2008. And except for some brief periods, the market’s P/E Ratio is currently lower than it was during the vast majority of the time from 1991 to 2010.

Posted by Eddy Elfenbein on September 16th, 2012 at 8:17 am

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