Friday, August 21, 2009

New data on Corporate America and the stock market

Much to think about going forward in the stock market. As we approach the end of August and the beginning of the Fall, one thing on investors mind is this, Does the stock market have room to still go up since the rise of the past 3 months? To answer that question I will use The Chart of the Day below, because it shows we are in totally unchartered waters.

The scary thing to me from this chart isn't how far the S&P500 has gone up from its historic P/E ratio, but rather the implication for how far the market could drop, if reality sets in that we have a disconnect between the real economy and the stock market. This chart should give all great pause. To add money into the stock market is this level would seem to be the epitome of foolishness. If this doesn't look like a bubble, I don't know what would be a better example. It is a bit scary with a P/E of 145, which is a minimum of 3.5 to 4 times as high as it ever has been. Consider you have been warned! Unless we get a recovery which creates real jobs, we are looking at a very rough road ahead.

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