One of the key bullish arguments you’ll hear about stocks is that a PE of 14-15 isn’t so alarmingly high given where Fed Funds rates are and the earnings yield (inverse of PE ratio) versus the yield on a 10-year treasury. And this is true, expect margins are likely not sustainable at today’s levels over the course of a full cycle.
Paul Vigna had one of my fave investing columnists on his show today – Jack Hough looks at a more realistic multiple for stocks assuming profit margins mean revert lower at some point:
Source:
WSJ
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