S&P 500 PE Ratio: 1950-2008
I just threw this chart together out of curiosity. The color represents the S&P 500 PE ratio
In principle, you may expect the scatter plot to stay within a “normal cone”. At the end of Q2 ’09, the PE ratio was 122 (i.e. WAY OVER TO THE LEFT).
What is the path of least resistant to get back to “normal”?
- Down and to the right?
- Flat and to the right?
- Up and to the right?
I think the most likely path is gradually up and to the right (which is what inflation would do). What do you think?
Technical note: I capped the colors between a PE ratio range of 10-50 to emphasize the gradation.
Disclosure: I’m long BGU, EDC, ERX, and TMV.