Market's Valuation is Not Attractive, Buyer Beware

The S&P 500 has a trailing price-to-earnings (PE) ratio that has fallen over the last six months, but continues to be higher than I am comfortable with, and much higher than the market has seen historically.  As of Friday, the PE ratio was 25.08, above the average of 15.96. It is markedly below the high we reached in May 2009 when it peaked at 123.73, which is hard to fathom that such exuberance existed at the time, but still even less than the peak in Japan which rose to a trailing PE ratio of 600 in 2002!

S&P 500 trailing 12-month PE Ratio (source
For now, stocks overall are not cheap and any weakness in the economy, or any geopolitical issues, like Ukraine, could result in a further drop in valuations. Stocks with the highest valuations are likely to be at greatest risk. 

Carson Cole

January 21, 2022