Pop Goes The P/E Bubble

Investors and analyst as of lately are pushing the idea of markets being undervalued here and abroad.  These barons of the market use the P/E ratio as one supporting pillar of their argument.  This argument is an easy one to buy into due to its appealing story and the recent market uptrend.  Though taking a look at the data, a different story unfolds.

During recessionary and recovery times we see P/E closer to 10 then 20.  Those claiming that the market is undervalued due to the P/E ratio are misinformed.  Taking it a step farther the "Great Recession" in P/E terms does not look to be a great anything, a more dramatic downside should be obvious through the statistics.  The recessions of yesteryear had a greater effect on P/E for an extended time period.  Comparing current times to those of the great depression (the only similar economic time in history) another pull back in the P/E may be due.  To get to the point, the S&P may be dramatically overvalued contrary to what many of the leaders of finance say.  The information above suggests a pullback rather then any further momentum upward.

"Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception." - George Soros