Hi Kyle,

It’s useful to have a discussion (even for 5 minutes) with someone interested in U.S. stock market analysis.

My guess and intuition was wrong. Actually P/E ratio is not 5 times higher than 20 or 30 years ago.

https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-earnings-chart shows P/E ratio has not increased that much over those periods, so overpricing in recent years is not as obvious as I thought.

Now let me switch focus to price level instead of P/E ratio.  Why did I say valuations have gone up by 5 times at least? OK

https://www.macrotrends.net/2324/sp-500-historical-chart-data shows over 30 years s&p 500 level has increased more than 10 times. (To see it you would need to uncheck “Inflation-adjusted” checkbox.)

However, over the last 20Y, the increase is below 3 times, much more gradual.

Q: over 30Y, has corporate profits increased more than 5 times to justify the price increase?
A: I don’t know for sure but if price increase is, say, at least 10 times but P/E increase is close to 100% (almost doubling), then mathematically, corporate profit increase should be more than 5 times.

The 30Y data I used:

• P/E Jun 2018 = 22.2
• P/E Jun 1988 = 12.62
• Price Level Jun 2018 = 2729
• Price Level Jul 1988 = 270