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Comment by harryh | Hacker News Reader

On Jan 1, 2008 the S&P PE ratio (which just uses 12 months of earnings) was 21.46. Today it is 20.53.

https://www.multpl.com/s-p-500-pe-ratio/table/by-year

I upvoted you. This indeed shows that PE systemically entered into 20+ territory only this century. Those are long-term effects, I'm not predicting a crash "this market cycle", but a systemic change in 20 years.

The secular decline in interest rates as well as the increased ease of diversification can both easily account[1] for a modest long term increase in PE ratios. There is little reason to believe a decoupling from the fundamentals is a better explanation that these forces.

1. http://www.philosophicaleconomics.com/2017/04/diversificatio...

Have you seen this graph from the same source

https://www.multpl.com/inflation-adjusted-s-p-500

Indeed. The companies that make up the S&P500 are far more valuable than they were in the past due to the consistent technological and social advancement that has made the US far richer than it used to be.

Progress!

It's hard to interpret: this one https://www.multpl.com/shiller-pe shows an anomaly that began in mid 90s.

The inflation adjusted one could be interpreted simply as continuing concentration of capital and centralization. What about the overall market PE of all publicly listed companies (whose number is steadily declining by the way https://finance.yahoo.com/news/jp-startup-public-companies-f... )? I cannot find that data at the moment.

As to the anomaly that began in the mid 90s I will refer you back to my previous comment:

https://news.ycombinator.com/item?id=23206885

"Modest decline" of interest rates to 0 and into negative unleashed massive QE where the stock prices are tied to buy back programs and Fed purchases of corporate bonds more than to the fundamentals. I refer you to my original comment https://news.ycombinator.com/item?id=23206117

I'm not sure why you have modest decline in quotes as that wasn't something I wrote. As you note, the decline in interest rates is quite large. Indeed the fact that in some cases it has crept under zero is quite significant.

My guess is buybacks skew + weight from the previous quarters.

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