I made my first million by investing in the stock market back in the late 1990's. I got out of the market iseveral years ago for a reason -- I no longer trust the US economic system. Now, I'm waiting to hear that oil is not going to be traded in dollars and a total collapse of the US currency will take place. Who, in their right mind, would trade with the US? By the rapid decline of the stock market, fewer by the day. Get out and stay out!
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But that scenario assumes investors will continue to pay the same price for each dollar of earnings that they've a paid for the past 25 years. During that period, the p-e ratio for the S&P 500 has ranged between 10 and 46 (during the height of the tech bubble) and it averaged over 21 (higher than the long-term norm).
Since 1936, the stock market has traded for extended periods at a p-e ratio well below the long-term average of 15.7, however. From January 1977 until September 1982, for example, the S&P 500 never traded above 10 times earnings, and the average for that period was 8.3.
Analysts surveyed by S&P currently expect that multiple to continue to fall next year — to 12.8 times earnings. If the economy were to hit another prolonged bad patch like the 1970s, and that price multiple continues to fall, it could be some time before the stock market finds a bottom.
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