"Today's chart (8/21/09) illustrates how the recent plunge in earnings (see Chart of S&P500 Inflation Adjusted Earnings) 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 (this is wrong. See ** below). When the PE ratio is low, stocks are considered to be inexpensive. From 1936 into the late 1980s, the PE ratio tended to peak in the low 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) and the dot-com bust (early 2000s). As a result of the recent plunge in earnings and recent stock market rally, the PE ratio spiked and just peaked at 144 – a record high. Currently, with 97% of US corporations having reported for Q2 2009, the PE ratio now stands at a lofty 129."
** Why it is wrong: This chart is like driving using the rear-view mirror. It explains WHY we had the worst bear market since the Great Depression but it does nothing to predict the future which is what the price of the stock market attempts to do. For the future direction of the stock market, you need to look at the PE of the stock market using forward earnings, earnings growth rates and SAFE alternative investment in 10-year US Treasury bonds (See US Treasury Rates at a Glance) or bank certificates of depost (See Highest APY CDs with FDIC). We examine these variables and others every month in "Kirk Lindstrom's Investment Letter." Click for a FREE SAMPLE today.
Article: Beware of Annuities
|==> Very Best CD Rates
with FDIC <==
Article: How to Get the Best CD Rates
Source: Chart of the Day : Journalists and bloggers may post the above free Chart of the Day on their website as long as the chart is unedited and full credit is given with a live link to Chart of the Day at http://www.chartoftheday.com.
Best CD Rates Meter
advertise on this page, please