CHART OF THE DAY: The Market's P/E Ratio Surges

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In the end, the one thing that matters is how much companies can earn. Q1 earnings came in better than expected largely due to cost cuts, which is unsustainable. Today’s chart, put together by Eddy Elfenbein, compares the S&P 500 to trailing 12-month operating earnings. When the two lines touch, the PE ratio is at 16. As you can see, we’ve now made a severe bounce off the line, so the question is: Is the red line ready to turn up, or will the black line turn back down?

chart, s&p 500 and earnings

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