S&P 500 P/E Ratio – The hidden truth
Standard & Poor's New Policy: Concealing the S&P 500 P/E Ratio from the General Public
Some high-level decision-maker at Standard & Poor's has decided that the public should no longer be allowed easy access to this crucial number: the Price/Earnings ratio of the S&P 500.
That number went above 140 on September 30, 2009 -- the highest ever recorded. It had continued upward all year.
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My guess is that the company came under pressure from the brokerage industry to stop publishing what has to be a frightening statistic for brokers, a statistic that says "Sell!"
In other words, if you use 16 as the normal P/E ratio for the S&P 500 then stocks are about 8.75 times over valued for their earnings.
To put things in context of what exactly this means I'll use the tech bubble in 1999/2000. People bought into the mania that drove stock prices to excessive levels but then it happened... The Crash. P/E ratios pushed towards their historical norm and the NASDAQ fell from 5,048.62 to below 2300.
If you apply the same logic here, we're looking at the S&P index dropping to less than 600. If you account for inflation, it would be 400 in year 2000 dollars by the official CPI index and 300 if you go by the shadowstats.com inflation index.
Will investors realize their stocks are way over-valued? All the while, the media is keeping this very quiet because they don't want to wake the sleeping giant. I'll tell you this: I don't want to be in stocks right now.