Chart of the Day says S&P 500's stocks p/e just peaked at 144 and now 129 - but who's counting?!

One of the arguments being made today for buying the equities markets is that costs have been cut so much that, once there's any little uptick in consumer spending and company revenues, then earnings will rally well. Then again, the folks at "Chart of the Day" want to point out that current p/e ratios have become very lofty. Well, we don't get too deep into fundamentals here normally, since so many others do and we focus more on the trades (which don't necessarily track fundamentals near-term). But this is impossible to resist, so let's see what they're showing today:

Chart of the Day August 21, 2009

Today's chart illustrates how the recent plunge in earnings has impacted the current valuation of the stock market as measured by the price to earnings ratio (PE ratio). Generally speaking, when the PE ratio is high, stocks are considered to be expensive. When the PE ratio is low, stocks are considered to be inexpensive. From 1936 into the late 1980s, the PE ratio tended to peak in the low 20s (red line) and trough somewhere around seven (green line). The price investors were willing to pay for a dollar of earnings increased during the dot-com boom (late 1990s) and the dot-com bust (early 2000s). As a result of the recent plunge in earnings and recent stock market rally, the PE ratio spiked and just peaked at 144 – a record high. Currently, with 97% of US corporations having reported for Q2 2009, the PE ratio now stands at a lofty 129.

Journalists and bloggers may post an occasional free Chart of the Day on their website as long as the chart is unedited and full credit is given with a live link to Chart of the Day at http://www.chartoftheday.com.