Stock Market Valuation Measure Reaches New Level

Despite all this "correction" talk, you can't argue with the very normal trend that corporate earnings are adapting to.  As you can see below, they are scaling into the very long-term up-trend that earnings have produced in the last 40 years - not too hot, and not too cold.

At the same time, we have this very stable uptrend-line growth of earnings, we are seeing that investors have finally started to be willing to pay a little more for this stable growth rate.  The P/E has finally moved out of that trend peaking at "13" that has limited the rallies over the past few years, and is now selling at 14 times expected earnings.

With inflation remaining subdued, history tells us that the P/E ratio has the potential - if today's negativism ever reduces - to move up substantially from here. 

Don Hays

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