Double the P/E ratio, double the fear

Bespoke Investment Group is out with another chart showing the quick run up in earnings multiple since the March lows.  They chart began from October of 2002 when the P/E multiple was at about the same level as where we are now.  The problem with the current S&P earnings multiple is that, it has run up so fast it moved from 10 to an almost double 18.35 in a span of 5 months.  There’s usually no problem with growing P/E for as long as earnings is similarly growing.  But in this case, the two elements are going in the opposite direction.  Prices have run up so quickly while earnings were not necessarily following.  We can only fear.

PE2

To Bespoke’s page.

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