Earnings PE

Chart of the Day  looks at the stock market's PE multiple:

"Today's chart illustrates how the recent rise in earnings as well as recent stock market action 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 1900 into the mid-1990s, the PE ratio tended to peak in the low to mid-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), surged even higher during the dot-com bust (early 2000s), and spiked to extraordinary levels during the financial crisis (late 2000s). As a result of the continued surge in corporate earnings the PE ratio remains at a level not often seen since 1990 despite what has been a significant upward trend in stock prices so far this calendar year"

My comment:  This rise in earnings and the current low valuations of stocks overall explains why even though I think it is possible that we will see a correction at some point and while I think short term stocks are fairly valued, I think markets have the potential to be 5-10% higher by year's end.  Note that while there is potential for gains into the end of the year, there is no guarantee that will occur!

Link:  Chart of the Day: Earnings PE.

*Long ETFs related to the S&P 500 in client and personal accounts.