The 12 month forward P/E ratio for the S&P 500 is the lowest since 1987. It is 13% lower than the bottom in March 2009.

The forward 12 month (“FTM”) P/E ratio for the S&P 500 is the lowest since following the crash in October 1987.  Since 1982, the early days of the era of low inflation and declining interest rates, the market has been up 100% of the time 12 months after the FTM P/E ratio has been 10.5X or lower by an average of 11%.  Over the same period, if the FTM P/E ratio was less than 12.06X – the level reached at the March 2009, the bottom of the Great Recession bear market – the market has been up 94% of the time 12 months later by an average of 17.8%.  In order for the message from the current P/E ratio to be correct, earnings must either plunge 31% or the S&P 500 must gain over 40% in order for the P/E ratio to adjust to the median ratio since 1982Jeb Terry, Sr. Sept 25, 2011

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