Consumer confidence is returning. Rising confidence goes with rising P/E ratios and therefore, rising stock prices

I have commented in the past (here) about the correlation of consumer confidence and the S&P 500 P/E ratio.  Recent work by GaveKal Capital  has also shown there is an 81% correlation between consumer confidence and the P/E ratio.  The following chart from Rasmussen Reports reveal there has been ~33% improvement in consumer confidence since Sept/Oct of last year.  While the P/E ratio has increased also, it is nowhere near the 17.3X level that was measured back in Jan. 2008 when Rasmussen reported that confidence was near the current level or the 15X at Dec. 2010.  Confidence, while improving, is still sharply lower than four years ago.  This confidence measure was as high as 93.1 this month.  It was consistently above 120 from 2002 until 2008.  Jeb Terry, Sr. February 9, 2012

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