Market can disregard current high PEs when it's expecting much higher "E" later.... such is the case now. Market buzz is for "$74 earnings in '10".... probably "operating".
It would be helpful to know the input constructs of their model in deriving the PE ratios stated. Simple math would imply their model has an E of approx $7.95 ( 1026/129) This seems low, but without knowing how they are deriving at their earnings #'s to supply the E, it is unclear how accurate or inaccurate their 129 level is. For example, are they subtracting all reported losses, in effect offsetting any reported gains? I would concluse that is how they may be deriving at 129. If so, might that PE someday actually become PL...price / losses??
What do I think ? Everyone in the news is Bullish; every analyst is bullish; the market has had an unbelievable run; Bernanke has gone out on a limb stating that the recession is over, and we are on the mend......what does this all mean - a hard, hard fall come September. Take money off the table, and stay in cash, until the next time to buy happens.
July 31, S&P was showing As Reported Earnings at $6.86. Someone suggested the earnings could go negative at some point in the 3rd quarter... if that were to happen, P/E Ratio would officially be "irrational"..
I see the PE for SPY on yahoo finance at 14.09. If last quarter's earnings for the S&P 500 was 6.86 and u assume $28 for the year then 1030/28 = 36.79.
why not just run some scenarios to see what is rational? if you assume a 20x p/e (about avg since '88) on 1000 s&p, you would need $50 dollars in as reported earnings over the next 12 months. now is a 20x p/e reasonable? I don't think so due to all the things that have gone on in the past of which everyone is aware. I would say 15x is reasonable and maybe even a little high (assuming things stabilize). is $50 reasonable? probably not for some of the same reasons but also including how high margins were over the last 5-10 yrs. peak as reported earnings got to about $85, so take half of that as a run rate and you get about $42. so $42 * 15 fwd multiple = 630 on the s&p a rough est to be sure, but I would think the market is overvalued here.