Equity markets are off to a great start in 2018 with stock indices around the world scaling new heights. In fact, January 2018 was not just a good month for stocks, it was a great month even by the average “good” standards – the Standard & Poor’s 500 stock index gained 5.62%, its best January since 1997.
As the bull market runs further and longer, many investors are finding new reasons to be bearish. However, here are some recent ones that don’t make sense:
1) Trailing P/E for US indices are too high relative to history
Price to Earnings ratios have been used for the longest time to gauge value; Higher P/E indicating a more expensive stock market can be considered general consensus.
However, in the current context, comparing trailing P/E to historical P/E in the US does not make much sense for 2 key reasons:
1.A) Trailing …