The stock market and economy have parted ways

Re:The stock market and economy have parted ways by FreeHugs on Monday July 13, 2020 @10:55AM (#23821401)

    Historically, the PE for the entire
    U.S. stock market is about 15. But
    today’s market PE of roughly 23 is
    about 50 percent higher than the
    historic average

Every time I see statements about the PE of the market, I wonder which PE they mean?

The price of the companies divided by their past revenue? If so, which past? Last month, last quarter, last year?

The price of the company divided by future revenue? Then future revenue guessed by whom and for which time frame?

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Re:The stock market and economy have parted ways by rnai on Monday July 13, 2020 @11:10AM (#23821552)

Normally this is 12 month trailing PE.

"The PE ratio of the S&P 500 divides the index (current market price) by the reported earnings of the trailing twelve months."

So it's current total market value (add the market cap of all 500 companies in the index),

And divide by the total past 12 months earnings of the same 500 companies.

If that doesn't answer your question, please let me know.

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Re:The stock market and economy have parted ways by sgerenser on Monday July 13, 2020 @11:17AM (#23821646)

This site lists PE based on trailing 12 months earnings as 27.75: https://www.multpl.com/s-p-500-pe-ratio

So PE of 23 is probably based on projected "forward earnings" which isn't really that useful. The most common time period for both is 12 months and the projections are usually coming from a combination of guidance from each company and analysts at banks and investment companies. Obviously there's a large margin of error in these estimates.

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Re:The stock market and economy have parted ways by ryansmccoy on Monday July 13, 2020 @11:01AM (#23821462)

It's a little complicated because all these metrics are like trying to compare apples, oranges, and bananas. So, it depends, and it's not necessarily the best metric to gauge the valuation of the markets.

It's price divided by earnings.

For price, I believe it's the sum of the market capitalization of all the companies in the S&P 500. If you divide by shares outstanding for all the companies, then you get price of the S&P 500 (price).

For earnings, is the sum of all the companies earnings (Net Income) in the S&P 500. If you divide earnings by shares outstanding, then you get earnings per share (earnings).

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Re:The stock market and economy have parted ways by TuringNYC on Monday July 13, 2020 @03:01PM (#23824315)

Historically, interest rates were not this low, so naturally PE ratios would inflate now given cheap money. Also, historically, the Fed didn't print money to purchase ETFs and distort/inflate the market.

If there is a "new normal" for the PE, the hard part is figuring out what it is. What is the new acceptable level? I have no idea.

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Re:The stock market and economy have parted ways by ISL on Monday July 13, 2020 @11:12AM (#23821572)

In this context, one can probably use either trailing or forward PE. Companies do make forward earnings projections. Neither one is likely to bring P/E even close to 15.

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