The problem with historical P/E data π
Today's S&P 500 isn't like the S&P 500 of the past βοΈ
The price-to-earnings (P/E) ratio is probably the most popular and straightforward way to measure value in the stock market.
However, investors should be careful about the signal they glean from P/E ratios, especially relative to historical averages.
βThe S&P 500 is statistically expensive on 19 of the 20 metrics we track and is trading at its 95th percentile based on the first metric, trailing P/E, based on data since 1900,β BofAβs Savita Subramanian observed in a research note in which she makes the case for βWhy a 95th percentile P/E shouldnβt keep you up at night.β
βWe question the validity of comparing today's S&P 500 valuation to history given changes in the index's makeup (asset light), & healthier attributes of old economy sectors & renewed focus on efficiency,β she wrote on Wednesday.
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