Sluggish P E. RATIOS COULD STALL RALLY

Sluggish P E. RATIOS COULD STALL RALLY -...

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Sluggish P/E Ratios Could Threaten Stock Rally  Give Me a ‘P.’ Give Me an ‘E.’ What Does It Spell? Trouble. By PAUL J. LIM STOCK market bulls have at least two reasons for optimism: Corporate earnings have continued to climb, and sentiment on Wall Street has improved sharply in the last several weeks. In theory, this could provide more fuel for the stock market rally. After all, not only are earnings climbing, but the price that investors are willing to pay for those profits could also start to rise. And most investors now say they are optimistic about stocks , according to the American Association of Individual Investors. Yet there’s a problem with this argument: Price-to-earnings ratios based on current year earnings haven’t been rising lately. According to Standard & Poor’s, the P/E for the S.& P. 500-stock index, based on 2011 estimated operating earnings, stands at 13.3, down from the 15.1 at this time last year, based on 2010 estimated profits. The situation has set off a Wall Street debate over whether investors should count on market valuations to rise at all this year. In fact, some strategists are even hinting that P/E’s could slump, which would create a major headwind for this rally. To be sure, taken as a group, investors are moving money back into stocks. After yanking $182 billion out of stock mutual funds between January 2007 and last November, they
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This note was uploaded on 03/07/2011 for the course ENG 101 taught by Professor Heinlein during the Spring '11 term at Indiana Northwest.

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Sluggish P E. RATIOS COULD STALL RALLY -...

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