- the source for market opinions


June 6, 2020 | Skyrocketing Dow and S&P 500 is due to Excessive PE Ratios!

Donald B. Swenson: Born January 24, 1943, Roseau, Minnesota. Graduated H.S. 1961, Moorhead High, Minnesota. Graduated College 1968, Moorhead State University, Minnesota. Designated member of Appraisal Institute (MAI), 1974. Employed with Western Life Insurance Company, 1968 – 71; Iowa Securities Company, 1971 – 73; American Appraisal Company, 1974 – 81. Part-time teacher/valuation consultant/bartender, 1979 – 2008 (taught workshops at Waukesha County Technical Institute, Wi. and Madison Area Technical College, Wi.). Retired 2008 (part time teacher/blogger), AZ. Self educated economist/philosopher/theologian:

As of today our Dow Index has a PE ratio of 24.32 (it was 15.91 year ago). The S&P 500 PE is now 24.37 (it was 17.10 a year ago). This explains why our stock prices have increased so dramatically. Exuberance of investors has produced PE ratios which are unsustainable. What does this mean going forward?

Since PE ratios are at record levels (unjustified based upon forward looking trends) it is likely that our stock prices will decline in the coming weeks. The exuberance must continue at elevated levels if these virtual stock indexes are to continue upward.

At some point we should witness a return to reality on issues like our PE ratios. When this happens we could witness some large declines in stocks. The Wall Street Journal also mentioned that the high flying tech stocks are providing the pump-priming as of now. Lower priced stocks have not enjoyed the run.

Our so-called recession (if measured by our stock indexes) is now over. This seems to be the message of our media pundits. The S&P 500 is UP some 40% since the March 23 low. Does this mean that prosperity is arriving along with a ‘V’ recovery? Personally, I don’t think so! The exuberance has been overdone and this means new declines in all these indices is coming.

Our virtual stock markets are all technically ‘imaginary’ markets. The valuations are done with currencies which are virtual/imaginary. Investors seem unaware of this ‘imaginary’ nature of our indexes and the valuations. This ‘illusion’ of the mind is allowing this temporary euphoria in our markets IMO. In reality, our economy is in serious trouble and anyone with some ability to discern the numbers can recognize this reality. See the numbers here:

We could witness more euphoria for a few weeks if our central planners (the Plunge Protection Team) continues to pump-up these indexes with behind the scenes trading. But with valuations at the extreme (evidenced by our PE ratios), my sense is that huge declines in our stock markets are coming. Beware of all these ‘imaginary’ scenarios presented by select pundits. The game of pump-priming could be reaching excessive levels. That is my perception as of today! Enjoy!

I am:

STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the Weekly Recap.

June 6th, 2020

Posted In: Kingdom Economics

Post a Comment:

Your email address will not be published. Required fields are marked *

All Comments are moderated before appearing on the site


This site uses Akismet to reduce spam. Learn how your comment data is processed.