Chart Of The Day observes that we’ve broken another record…
Why shouldn’t we panic? Because the reason the PE is so high is that earnings are near a cyclical low. This chart actually illustrates why it’s silly to use P/E ratios based on a single year of earnings–because they can be wildly misleading.
On normalized earnings, stocks are about 10%-15% overvalued (see Robert Shiller’s chart below). That’s a far cry from the record overvaluation shown in the chart above.
Of course, just because we’re not at a record normalized PE doesn’t mean the market won’t crash.
Thanks to John Houston for the link.
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