The WSJ has a great little interactive feature today – or at least it would be great if it didn’t start talking at you the minute you opened it and every time you click on a new tab. Turn your speakers off first!
In any case, the graph above shows the S&P 500, in red, against the S&P’s p/e ratio, in yellow. Turns out that the p/e ratio has been as flat as Kansas for well over three years, in fact trending downwards slightly even as the market was hitting new highs last year. A bubble this ain’t.
This graph can be seen as a cause for optimism: there wasn’t irrational exuberance in the stock market of late, and it seems that if there is a pullback in corporate earnings – as you can see at the end of 2001 – the p/e ratio has no problem spiking upwards in response.
(Via Gaffen)