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Wednesday, July 09, 2003 9:54:32 AM
Chart of the Day
Last week's chart illustrated how earnings have been improving as of late. Today's chart relates earnings to stock prices and illustrates how the price-to-earnings ratio (on a logarithmic scale) has traded in three trading ranges over the past 4 decades. When viewed in this way, you can see how stock prices tended to correct soon after the PE ratio peaked at the top of its trading range. The reverse has also been true with stock prices often rallying soon after the PE ratio was near the bottom of its trading range. Where do we stand now? Currently, the PE ratio is at 33.3, which is just about where it was at the end of the tech bubble. Not cheap by historical standards, but the chart does demonstrate how the price paid for a dollar of earnings has been trending up over the past two decades. Stay tuned...
Notes:
- PE ratio based on the S&P 500 and S&P 500 reported trailing 12-month earnings.
Last week's chart illustrated how earnings have been improving as of late. Today's chart relates earnings to stock prices and illustrates how the price-to-earnings ratio (on a logarithmic scale) has traded in three trading ranges over the past 4 decades. When viewed in this way, you can see how stock prices tended to correct soon after the PE ratio peaked at the top of its trading range. The reverse has also been true with stock prices often rallying soon after the PE ratio was near the bottom of its trading range. Where do we stand now? Currently, the PE ratio is at 33.3, which is just about where it was at the end of the tech bubble. Not cheap by historical standards, but the chart does demonstrate how the price paid for a dollar of earnings has been trending up over the past two decades. Stay tuned...
Notes:
- PE ratio based on the S&P 500 and S&P 500 reported trailing 12-month earnings.
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