New historical record on the S&P 500 PER

I have been reporting record and totally unrealistic PER on the markets for the past several months, but those records keep on being beat by newer ones.

Is that the final equity bubble? Are we close to the end? Nobody can know for sure, but the odds are highly skewed toward a major collapse in the equity markets.

At the current PER (about 140) the value of the stock market would need to be divided by 20 — or decline by 95% — to reach a normal bottom on a bear market (that would mean the S&P 500 trading at about 50 !) or the total earnings of the 500 biggest US companies need to rise by 2,000%. Or anything in between.

For example you should have a decline of about 50% if the US companies increase their earnings 10 fold (i.e. by 1,000%). This is how realistic the current market is.

Click on the chart for to obtain a bigger picture.

ChartOfTheDay.com comments:

From 1936 into the late 1980s, the PE ratio tended to peak in the low 20s (red line) and trough somewhere around seven (green line). The price investors were willing to pay for a dollar of earnings increased during the dot-com boom (late 1990s) and the dot-com bust (early 2000s). As a result of the recent plunge in earnings and recent stock market rally, the PE ratio spiked and just peaked at 144 – a record high. Currently, with 97% of US corporations having reported for Q2 2009, the PE ratio now stands at a lofty 129.

Previous related posts here.