Chart of the Week: P/E Ratio: Cyclical Expansion and Contraction

We have addressed the cycle of P/E expansion and contraction many time in the past. Today, we bring you a related study from Bob Bronson’s Capital Markets Research.

Stock market P/E ratios are a mean-reverting phenomenon. Over the past 135 years, stock market P/E ratios have explained about 50% of stock returns over the subsequent decade. During the three periods starting on 1/19/1906, 11/28/1929 and 5/14/1965, market P/E ratios declined between 65% and 75% over the next 14 to 20 years. During the three Bull periods (8/24/21, 6/13/49 and 8/12/82), the stock market’s P/E ratio rose between three- and five-fold.

P/E Ratio: Cyclical Expansion and Contraction


Source:  Bronson Capital Markets Research

We may be in the same cycle where P/Es are contracting. Market Analysts like Bob Bronson expect the next cycle to start with a market P/E ratio below 10, sometime near Oct 2014.


Random Items:

Why aren’t we saving more

Reassessing Hard Landing Risks

Greenspan: Third-party candidate coming

China Visit Report

Math Divides Critics As Startling Toll of Torts Is Added Up

Top 10 Ways to Find Great Photos on Flickr

The Physics of Extra-Terrestrial Civilizations


Quote of the Day:

“A loss never bothers me after I take it. I forget it overnight. But being wrong –not taking the loss—that is what does damage to the pocketbook and the soul.” 
-Jesse Livermore

Category: Technical Analysis

How Have Economic Reports Been Running?

Category: Data Analysis, Economy

Media Appearance: Kudlow & Company (3/14/06)

Category: Media

Rating Iraq Policy

Category: Politics, War/Defense

How a Stock Analyst “knows” he’s the Shizznit

Category: Financial Press, Markets

About Time: NYT kills print stock tables in print edition

Category: Financial Press

Qs Short Interest

Category: Markets, Technical Analysis, Trading

Economic Disparity

Category: Economy

Coming Soon: Mortgage Payment Resets

Category: Economy, Real Estate, Retail

Weekend Linkfest

Category: Weblogs