David Wilson over at Bloomberg has delivered another excellent “chart of the day”. This one shows the earnings of all American companies (public and private) against the S$P 500. The bottom line is that stocks are quite a bit less expensive now than they have been near other major market tops, and that could bode well for stocks.
It really comes back to the lemonade stand that we described in our earlier blog. Stocks have value insofar as the companies that they represent ownership of are ‘going’ concerns. And what better measure of a company's success than the amount that company earns. So while there are many other measures of market valuation the venerable price to earnings ratio is one of the most fundamental. And in this look at earnings vs the price of the S&P the price seems reasonable versus the earnings that companies are bringing to their shareholders.
You can read the whole article here: