Valuation Risk = 3% Inflation

June 14, 2017 BY James Paulsen

Stock investors are understandably concerned about the valuation of the U.S. stock market. On trailing 12-month earnings per share, before extraordinary items (as published by Bloomberg), the S&P 500 stock price index currently trades at about a 21.5x price-earnings (PE) multiple. Based on monthly observations since 1950, the current PE is about 25% above its average of 16x, and is higher than 88% of the monthly PE multiples since 1950.

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