What a Way to Start a Quarter
US Stocks got smacked, and at least some of CNBC's yellers are blaming all the inflation talk from Fed officials these last few days. Others are pointing fingers at the ISM services report. The S&P 500 has lost more than 2.5% of its value this week, putting it below 1200 and below it's starting price for 2005.
Well, at least we still have our dividends. All 1.7% of 'em. Have you reinvested yours?
Naturally, I thought that this would be a really cool moment to update the valuation spreadsheet, which now shows a trailing P/E ratio of 16.76, and a Year-2005-earnings P/E of 16.19 (which might mean something if 2005 earnings don't collapse under the weight of spooked consumers and mounting energy prices). For perspective, the average P/E ratio for US stocks from 1935 through March 2005 was 15.65. From 1960 forward, the average is 17. And from 1996 forward, a period which includes the crazy tech bubble, the average P/E was 28.25.
So today's US stocks are right there in the average price range, and certainly a lot cheaper than they were during the recent period of irrational exuberance.
One thing seems clear to everybody: the Fed isn't going to stop their rate-raising at 4%. Some don't even think they'll stop at 4.25%.