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“Uncle” Jeremy Semi-Warns

03/03/2015

My favorite professor at Wharton – the brilliant but affable Dr. Jeremy Siegel – enjoys a reputation for being an accurate forecaster as well as a “perma-bull,” i.e., someone who always thinks things will get better.

Yesterday, he pointed out that the PE ratio for the S&P 500 is now 19 times last year’s earnings per share.  This is significantly above the long-run trend of 16.7, suggesting the market is now fully-valued, historically speaking.  It is even more remarkable that the market is so fully-valued in the face of so many companies decreasing their future earnings, primarily due to the stronger dollar.

However, he is not calling for a market correction.  Given the historically low interest rate environment, he believes that a higher PE ratio is justified . . . at least for now.

Of course, interest rates are going up, sooner or later.  Yes, but earnings per share are also going up, sooner or later!

Stay the course . . . at least for now.

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