Since December 19, the S&P 500 has rallied an impressive 12.6% and is now within arm’s reach of last year’s high of 1370.58 on May 2:
But on a trailing 12-month P/E ratio, the S&P looks much cheaper than it did in May of last year:
May 2011: 15.8
Feb 2012: 14.1
And looking ahead, the S&P is trading at a relatively low 13.0x 12-month forward earnings (based on expected 2012 “earnings per share” of $105).
Now that a Greek deal has finally been reached and bond rates in Italy and Spain are below critical levels, do you believe the P/E ratio will start to expand?
Looking a year down the road, if you apply a 12-month forward P/E ratio of 15 (the median over the last 10 years) to current 2013 earnings estimates of $112, the S&P would be around 1680 (about 24% higher than it is now). What, if anything, could provide the catalyst to get us there?
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