The Market’s P/E Is at a Nine-Month Low

Here’s a look at the P/E Ratio for the S&P 500 going back to last June. The market’s P/E is the lowest it’s been in nine months (though today’s rally will change that).

What’s interesting to note is that the market’s rally hasn’t been due to higher multiples but rather mostly been driven by earnings. In fact, at 14.22 times earnings, the market’s earnings multiple is still fairly modest.

Put it this way: the S&P 500 averaged an earnings multiple of 16.94 from 2004 through 2007. Applying that multiple to the Wall Street’s earnings forecast for 2012 gives us an S&P 500 of 1,891.

There’re a lot of ifs involved in reaching that number, but I wouldn’t say that they’re unreasonable. The market continues to be overly worried about the future.

Posted by on June 14th, 2011 at 2:25 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.