S&P 500 P/E Ratio More Useful for Gauging Long-Term Returns Than Predicting Short-Term Performance
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P/E ratios are more useful for indicating long-term market direction rather than short-term performance.
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Over the past 30 years, the S&P 500's P/E ratio has had little correlation with 1-year forward returns.
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However, there is a clear downward-sloping trend between the S&P 500's P/E ratio and 10-year forward returns.
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High P/E ratios do not necessarily mean stocks are doomed to perform poorly in the near future.
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Fundamentals remain strong, so elevated valuations could persist through 2024 or longer.