What Does The ‘Rule Of 20′ Say About Current Stock Prices?

After a strong close to trading last week, the S&P 500 is once again nearing all-time highs. The six-year bull market that followed the Financial Crisis has been good to many investors.

Earnings ratios

One of the most traditional ways of valuing the stock market is by using the price to earnings ratio (PE). The S&P 500’s current PE ratio is 20.7, much higher than its historical long-term average of 15.5. The S&P’s PE is currently sitting at its highest point since 2009.

In terms of the future, the S&P 500’s projected forward PE is currently 16.8, lower than its trailing 12-month PE, but still higher than its long-term average of 13.7.

CAPE

A look at Nobel Prize-winning economist Robert Shiller’s inflation-adjusted CAPE ratio also indicates that the market currently has an extremely high…

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