Large-company stock prices in have tumbled 13% in three months. Small-company stocks have done worse. The ratio of share prices to company earnings (”P/E”) is the lowest it has been in more than a decade. But is it low ample to produce the broad market cheap?

That depends on how you degree. by the past 135 years, stocks have carried an average P/E of 15.1, based on trailing 12-month earnings. (I’m using input provided on the websites of Yale economist Robert Schiller and Standard & Poor’s.) As of the shut of trading Thursday, the S&P 500 index, which more or less tracks the stock performance of America’s 500 largest companies, had a P/E ratio of 16.6.

Viewed like that, stocks look a smidgen pricier than average.

Remove special charges for things like naughty loan write-downs from the past year’s earnings, and the aftermath is a more alluring P/E of 14.9. Whether that’s a fairer number or not is a matter of opinion. But whether we were able to apply the same tactic to 135 years of corporate accounting, we’d surely end up with a lower historical P/E, too. That suggests again that stocks are pricier than average, but not worrisomely so.

Continue reading Are stocks cheap right now?

Original post by Jack Hough

finance credit card credit report foreclosure insurance credit payday loans mortgage investing tax