In my opinion PE ratio's are not very important. The yield is the key to the "core" of the market fair value area. If the market is priced way too far away from it's core the market loves to cycle it's way back toward the core fair value area. From what I have seen over the last three years... This market likes to track the same yield as the market did from 03 to 07. A yield around of 1.8-2%. With interest rates so low investors don't really have any choice but to go after stocks when they get fundamentally under-priced if they are to get any return. As long as there is no systemic shocks like a EU crisis or Iran war oil crisis which causes a temporary price suppression of the market via a supply surge... The market generally is priced properly to the fundamentals of the asset class vs the other available asset classes and their return. http://www.decisionpoint.com/tac/Swenlin.html Current Closing Price.............: 1362 Current Yield.....................: 2.0% The three quarter leading fair value of the S&P 500 is the PE it also likes to gravitate towards too. Est 2012 Q2 Fair Value (SPX if P/E = 15): 1386 PE IMO isn't as important and is more physiological than fundamental. What does this mean? The fair value area the market will gravitate back toward is around 1375-1425... Delusional rallies toward 1500 and delusional sell-offs toward 1200 will eventually snap back toward fair value area provided the ECB and the Fed can hold the system together. Been watching this for years and it's always correct. The market always snaps back to it's proper fundamentals after delusional euphoria and irrational panic. Supply/Demand of the asset class follows it's fundamentals on "Average".