by John Manfreda, Gold Seek:
In part 1, I wrote about why the Fed can’t raise interest rates without the US economy going back into a recession. For part 2, I am going to explain why the Fed can’t raise interest rates without crashing the stock market.
The biggest misconception about the stock market is that it’s not overvalued. This assumption is based on the average Price to Earnings ratio (PE ratio) of the companies in the S&P500. To justify this assumption, they compare its PE ratios, to the ones in 1999.
Currently, the S&P500 PE ratio is trading at a rate of 19 times earnings. In 1999, the average PE ratio of the S&P500 was trading at a rate of 32 times earnings. The average PE ratio generally trades at a rate of 20-25 times earnings. This fact is why pundits claim that we are not in a stock market bubble, like we were in the year 2000.
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