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S&P; 500's P/E Ratio Soars
-- March 12, 2002

Yesterday, we looked at the tremendous overvaluation in the Dow Jones Industrial Average. Today, we examine the S&P; 500 Index, which is even more overvalued!

Currently, the S&P; 500 trades at an amazing 62 times current earnings! Just to give you an idea of how overvalued the S&P; 500 is right now, check this out: At the peak of the bull market in March 2000, the S&P; 500's P/E ratio stood at 31.6 times earnings. Today, it is double that level. With an historical average of 16, the S&P; 500 would need to fall 74% to regain normal valuations.

Want further proof? Just take a look at this chart, based on Bloomberg data:


This chart clearly shows that the P/E ratio of the stocks in the S&P; 500 Index has skyrocketed since the post-September 11th rally began. This rally is clearly built on smoke and mirrors … promises of a recovery that haven't yet amounted to a real boost in corporate earnings.

related article: S&P; 500 Drops as Lucent, Nokia Cut Forecasts