According to Market Realist’s senior financials analyst:
As the S&P 500 index approaches new highs not seen since 2007, the current market’s P/E is some 2 multiple points lower than in ’07 which means that stocks are not as expensive despite being close to making new highs. In concert with this more favorable valuation currently for stocks, we point out there is still ample cash on the sidelines that could be invested which could fuel even further gains for equities.
As the stock market approaches the all-time high for the S&P 500 of 1,565 which was hit on October 10th, 2007, we note that the current valuation of the S&P 500 in early 2013 is substantially cheaper than that high level made in ’07. This could mean further gains for stocks as investors continue to adjust their asset allocation. The current day’s market level of 1,507 represents $108 in all S&P 500′s company’s earnings per share (EPS) resulting in a price to earning’s ratio of just 13.9x. This $108 in EPS for the index currently is a much improved number from the earnings level expected in 2007 which was only $95 per share. This valued the market at 16.5x earnings at the time in 2007, or over 2 multiple points higher than the current valuation now.
For the full article, please follow the link below: Market Realist S&P500 P/E Ratio Below Long Run Average