PE Ratios

On occasion we take a look at historic PE ratios via Chart of the Day.com  Here's their latest and commentary.

Today's chart illustrates the price to earnings ratio (PE ratio) from 1900 to present. 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). Since the early 2000s, the PE ratio has been trending lower with the very significant but relatively brief exception that was the financial crisis. More recently, the PE ratio has trended higher (to around the 19 level). However, over the past five months, corporate earnings have increased enough to maintain a relatively flat PE ratio -- an overall positive for the stock market.

My comments:  One thing to note is that the chart above has to depict trailing PE averages.  The forward four quarter PE ratio for the S&P 500 is 14.5.

Link:  Chart of the Day.com: Historic PE's

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