|Today's chart illustrates how the recent rise in earnings has impacted the current valuation of the stock market as measured by the price to earnings ratio (PE ratio). Generally speaking, when the PE ratio is high, stocks are considered to be expensive. When the PE ratio is low, stocks are considered to be inexpensive. From 1900 into the mid-1990s, the PE ratio tended to peak in the low to mid-20s (red line) and trough somewhere around seven (green line). Notice how investors were willing to pay much more for one dollar of earnings during the dot-com boom, the dot-com bust and financial crisis. Currently, the PE ratio stands at 16.1 – a level not seen (except very briefly in August 2010) in over two decades.Notes:
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Quote of the Day"The value of a man should be seen in what he gives and not in what he is able to receive." - Albert Einstein
Events of the DayAugust 08, 2011 - PGA Championship begins (ends August 14th)
Stocks of the Day-- Find out which stocks investors are focused on with the most active stocks today.
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