129 !?!?!?!

6 posts / 0 new
Last post
Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
129 !?!?!?!

Today’s chart illustrates how the recent plunge in earnings has impacted the current valuation of the stock market as measured by the price to earnings ratio (PE ratio). Generally speaking, when the PE ratio is high, stocks are considered to be expensive. When the PE ratio is low, stocks are considered to be inexpensive. From 1936 into the late 1980s, the PE ratio tended to peak in the low 20s (red line) and trough somewhere around seven (green line).

The price investors were willing to pay for a dollar of earnings increased during the dot-com boom (late 1990s) and the dot-com bust (early 2000s). As a result of the recent plunge in earnings and recent stock market rally, the PE ratio spiked and just peaked at 144 – a record high. Currently, with 97% of US corporations having reported for Q2 2009, the PE ratio now stands at a lofty 129.

 

Chart of the Day: S&P500 P/E Ratio

20090821

 

 

DrKrbyLuv's picture
DrKrbyLuv
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 1995
Re: 129 !?!?!?!

Davos,

Good stuff (as usual).  The federal reserve "plunge protection team" is working overtime manipulating phony growth in the stock market and the big banks are making an extra buck pushing the market up through high velocity trading.  Like everywhere else, we have a bubble brewing.

Larry

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: 129 !?!?!?!
DrKrbyLuv wrote:

 we have a bubble brewing.

Wink +1

DavidC's picture
DavidC
Status: Silver Member (Offline)
Joined: Sep 29 2008
Posts: 243
Re: 129 !?!?!?!

Hi Davos,

Notwithstanding the chart and current P/E (I've seen elsewhere that it's over 140, but I can't for the moment remember the source) - presumably that's before today's close nearly 20 points higher and nearly 30 points higher than its pre-market low last night/this morning! - I was a  bit concerned by the note at the bottom of the chart;

"Notes;- Where's the market headed? The answer may surprise you (bold mine). Find out right now with the exclusive & Barron's recommended charts of Chart of the Day Plus."

Crikey - does that mean it's going up further?!

DavidC

Cloudfire's picture
Cloudfire
Status: Diamond Member (Offline)
Joined: Sep 29 2008
Posts: 1813
Absurd P/E's

Stock prices have completely disconnected from fundamentals . . . What we have here is a casino, not a legitimate market of stocks . . . I never did much gambling in casinos, either . . .

Dogs_In_A_Pile's picture
Dogs_In_A_Pile
Status: Martenson Brigade Member (Offline)
Joined: Jan 4 2009
Posts: 2606
Re: 129 !?!?!?!
DrKrbyLuv wrote:

Davos,

Good stuff (as usual).  The federal reserve "plunge protection team" is working overtime manipulating phony growth in the stock market and the big banks are making an extra buck pushing the market up through high velocity trading.  Like everywhere else, we have a bubble brewing.

Larry

Larry - Trade it, don't concern yourself with explaining it, because the why doesn't matter.  P/E could go to 250 - who cares, trade it on the way up.  Trade the pull backs.

And keep one eye on the surface tension of that bubble, because they always burst.

And when it does, trade that too.  

You guys are spending an awful lot of unproductive time attempting to explain and understand "why" the market is doing something instead of taking advantage of the fact that it "is" doing something.

Movement is all that matters.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments