The S&P 500 Costs 27.5 Times Earnings. History Says What a Starting Multiple That High Buys You Over 10 Years.
Vanguard's own 10-year forecast for U.S. stocks is 4.2% to 6.2% a year. The record behind numbers like that is worth seeing whole.
Overview
As of this writing, the Vanguard S&P 500 ETF (NYSEMKT: VOO) sits within about half a percent of its 52-week high of $714.16, trading around $710. Behind that price is a market that costs about 27.5 times its companies' earnings, far above the long-run average of about 16 for the S&P 500 (SNPINDEX: ^GSPC).
Setting aside stretches when collapsing profits inflated the ratio, as in 2008, the market has sustained a level this high in only two eras. One was the late 1990s. The other is the past two years.
Details
Paying that much per dollar of earnings has had almost no bearing on what stocks do the next month, or even the next year. Over a full decade, it has mattered enormously.
Source
Originally published at www.fool.com.
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