Forward Earnings Update

Yikes!! The forward P/E ratio for the S&P 500 is now at 15.1!! Is that scary?


Not really.  In fact, it is pretty obvious when you look at today's inflation, and the prospects of inflation for the next decade as the Technology Revolution, low interest rates, and the dramatic growth in the world's labor force in this new flat world affects productivity and wage rates.  P/E ratios are a direct reflection of productivity and optimism. 


So as productivity and inflation remain low, we will see the blue line in the chart above continue to move closer to the red line.  That means today, with normal investor emotions, the P/E ratio should be 17.3, not a "lowly" 15.1.

All of this has to do with the cyclical and secular bull market.


Don Hays

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