While economic fundamentals are amazing (both domestically and outside the United States), many are calling for a pullback based on equity valuation. There are countless ways to assess value, but the metric most often sighted is the price-to-earnings (P/E) ratio.
The P/E ratio can be read looking forward 12-months which is the one I like in part because the market is a forward-looking barometer and harbinger of the future developments. On that note, the current Forward price-to-earnings (P/E) ratio is 18.4, which is well above the al average of 15.9, but it is nowhere near levels associated with market crashes.
On the other hand, the 12-month trailing P/E ratio is at the point that signaled the great tech crash of 2001. It’s not something I dismiss out of hand, but all of this gets me to circle back to the underlying economy and economic momentum that is only going to gain strength near-term.
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