The PE ratio of the S&P 500 breached the 3rd standard deviation (red horizontal) of its mean (blue dashed horizontal) to the upside in June 2021. This is only the third time that it has breached this level. Interestingly, the first time was in the tech wreck period; the second was in the global financial crisis period.
Notwithstanding that the PE ratio is not normally distributed around its mean (i.e. its mean is larger than its median), the reactions after the prior breaches of the red horizontal suggest a pullback to the average. Whilst, the market is not quite there, it is near. I.e. there may be another leg of selling before fair value.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.