- Every long-term boom in earnings has been preceded by a high PE ratio.
- PE ratios most consistently anticipate 20-year earnings growth, but they have a curious relationship with 7.5-year earnings growth.
- Earnings growth in excess of that anticipated by PE results in positive stock returns.
- Recent history suggests that the stock market needs less excess growth than it used to.
- This recent change in the relationship between stock returns and earnings growth is probably unsustainable and will result in substantially lower long-term returns, even with high earnings growth.
For further details see:
The Death Of Irrational Exuberance, Part 3