The S&P 500’s Price/Earnings Ratio

Although the market has had a strong run over the past 21 months, the S&P 500 doesn’t appear to be overpriced according to the market’s P/E Ratio.

For 2008, the market earned just $48.51. Last year, earnings climbed to $56.86. This year, earnings are projected to be $83.68. Earnings for next year are projected to be $94.76.

Here’s a look at the S&P 500 (black line, left scale) along with its trailing operating earnings (gold line, right scale). The two lines are scaled at a ratio of 16 to 1 which means that when the lines cross, the P/E Ratio is exactly 16.

Posted by on December 27th, 2010 at 1:54 pm

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