an tSionna {05.10.13}

From Chart of the Day:   "For some perspective on the trend of the overall stock market, today's chart illustrates the trend of the stock market (as measured by the S&P 500) since 2000. As today's chart illustrates, the post-financial crisis rally (which began in early 2009) has been significant enough to move the S&P 500 to all-time record highs. In addition, the latest leg of the post-financial crisis rally has the S&P 500 breaking above resistance created by the last two all-time record highs (see thick red line)."

The thing to note is how the PE has compressed over the years.  We've shown a chart similar to this before and we've discussed this compression at this post.  PE's have compressed from 25 in 2000 to 15 in 2007 to about 14.7 today based on forward four quarters earnings of $109.40,  numbers which by the way I am beginning to think are too low.    The earnings yield is now at 6.7% in a less than 2% interest rate environment.

Markets may be due for a bit of a rest as stocks have moved a lot in a very short period of time but based on what we know today, probability suggests the overall trajectory of prices ought to trend higher.  The major reasons for this in my mind are simple.  First the economy, particularly here in the US, is getting better. Secondly global stimulus in the form of monetary easing has reduced the attractiveness of all other forms of investment with the possible exception of real estate.  

Link:  Chart of the Day.com: S&P 500