Visto en http://www.crestmontresearch.com:
AS OF: SEP 30, 2012 P/E
Price/Earnings Ratio 20.8
By historical standards, the higher levels of P/E in 2007 (~25x) were near the upper limit of “fairly-valued.” One implication could be that the current level of P/E has room to grow. Yet for investors that now foresee a greater risk of slower economic growth and/or a higher inflation rate or deflation in the future, the upper bound for P/E fair-value would be much lower than historically warranted.
Further, note that the reported P/E increased this quarter not only due to the market rally, but also as a result of a decline in earnings. The reported P/E remains distorted below the normalized P/E due to currently high and unsustainable profit margins.
Historically, the valuation level of the stock market has cycled from levels below 10 times earnings to levels above 20 times earnings. Except for bubble periods, the P/E tends to peak near 25.
What drives the P/E cycle? The answer is the inflation rate—the loss of purchasing power of money and capital. During periods of higher inflation, investors want a higher rate of return to compensate for inflation. To get a higher rate of return from stocks, investors pay a lower price for the future earnings (i.e. lower P/Es). Therefore, higher inflation leads to lower P/Es and declining inflation leads to higher P/Es.
The peak for P/E generally occurs at very low and stable rates of inflation. When inflation falls into deflation, earnings (the denominator for P/E) begins to decline on a reported basis. At that point, with future earnings expected to decline from deflation, the value of stocks declines in response to reduced future earnings—thus, P/Es also decline under deflation.
Rising inflation or deflation causes the P/E ratio to decline over an extended period which in turn creates a secular bear market. From periods of higher inflation or deflation, the return of inflation to a lower level causes the P/E ratio to increase over an extended period thereby creating a secular bull market.
The secular analysis for each year relates to the average index across the year; so for each year, the price (P) in P/E (price/earnings ratio) is the average index for all days of the year. The stock market has recovered most of its declines from late 2008 and early 2009; therefore, it’s now fairly clear that the period in late 2008 and early 2009 was just a cyclical (short-term) bear market blip within a longer secular bear market. Of course, that makes the last four years a typical cyclical bull market inside a secular bear market (it has happened many times before).
Note that the average reported P/E from 1900 to 2011, unadjusted for the business cycle and adjusted for the late 1990s bubble, is 14.