Tuesday, June 2, 2009

Exuberance again?

Money & Co, one of the many Los Angeles Times blogs, has published on May 28 a post with the title “After a big rally, stocks aren’t looking so cheap”. Even though your equity portfolio may be down more than 40% in the last year and a half, the major indexes have been up more than 30% since early March. Note that it doesn’t bring you back to your starting point, before the crash, but about 20% or 25% lower.

The median price/earnings ratio of stocks in the Standard & Poor’s 500 has averaged about 18 since 1988, based on operating earnings over the preceding 12 months, according to S&P.

That ratio is now 22, a warning sign that there may not be much room left for additional short-term gains.

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