A good measure of how "expensive" stocks are is the Shiller PE ratio. Essentially it's an index that shows how many times a stock's earnings the stock sells for*. If a stock rises in value, but the earnings of the business don't improve, the PE ratio goes up,
In June of 2007, the ratio hit a high of 27.32. After a slow slide that summer, the index went from 26 in Dec 2007, to a low...drum roll please... of 13.32 in Mar 2009. That's what a stock market rout looks like.
Where's the Shiller PE ratio now? 29.36. That's right! Even after a miserable 2022, the stock market is still priced higher than right before the crash of 2008. Are inflation, a pending recession and low unemployment (high wages) going to cause another crash?
No idea. Am I worried? Noooooooo
*Shiller PE ratio for the S&P 500.
Price earnings ratio is based on average inflation-adjusted earnings from the previous 10 years, known as the Cyclically Adjusted PE Ratio (CAPE Ratio), Shiller PE Ratio, or PE 10
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