The stock market is showing no signs of falling. From the looks of it the recession, at least as far as stocks go seems to be over. Take into account that the S&P 500 is still at late 90s levels, it has a long way to go before reaching it’s 2007 highs. However looking at the S&P 500 historical P/E ratios, it seems that every time the 20 P/E ratio is crossed, trouble starts. Mostly the trouble starts soon with the exception of the mid 90s to the tech bubble burst where the P/E grew leaps and bounds for several years.
The chart puts the current PE at 19.35 which is dangerously close to 20. Maybe next quarter results will see company earnings rise causing P/E to stay below 20 in spite of a rising market. But that remains to be seen. I’m cautiously optimistic. Many of my investments are back in the black and I’m adding to some investments slowly.
Also even though the recession may seem over in stocks, it doesn’t seem over in other aspects of people’s lives. Companies are still trying to cut benefits, skip raises and are still recruiting slowly as unemployment remains near all time highs.
The real estate market is still depressed. Home sales may be picking up but home prices are not. People are still stuck in underwater mortgages. Obama’s refinance plan did not work out as well as expected. Hopefully his healthcare plan will work out better?
Overall I’d say the recession is far from over and if you are saving money it might not be a bad time to start getting back into the stock market slowly.