the market p/e multiple

Since 1950, the P/E multiple of the S&P 500 has been on average 16.3x trailing twelve month earnings and the median value has been 16.6x earnings. Looking at the historical valuation multiples clearly shows that the market is neither expensive nor cheap relative to historical levels.

P/E multiples hit a monthly low in March of 1980 at 7.1 times earnings. P/E multiples hit a high of 29.9x historical earnings in June of 1999, roughly nine months before the dot.com bubble burst. These two time periods correspond very closely to periods of absolute pessimism and absolute optimism in the market. It is clear that sentiment drives valuation multiples. The more excited investors are about the future the higher the P/E multiple and the more pessimistic investors are about the future the lower the valuation multiple. Currently, sentiment is neither bullish nor bearish with many investors doubting the recent rally.

Additionally, bull markets rarely end at P/E multiples that are average. Historically, what has happened is that the optimism in the market during a bull market pushes the S&P 500 to higher than average valuation multiples before ending.

--- by Mitch Zacks, Senior Portfolio Manager, ZIM Weekly Update, 2/9/14

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The current P/E multiple (according to this article) is 16.6.  So it doesn't appear the the bull market is over.

*** [2/26/14]

Stock valuations today are substantially higher
than historical averages. Wall Street’s pitchmen
work overtime to devise ingenious ways of proving
that the market is reasonably valued or even
“cheap.” However, nearly all these schemes rest on
the proposition that today’s record corporate profit
margins will persist indefinitely.

Plotted below is a far more objective and accurate
gauge for projecting long-term equity returns. The
Price-to-Sales Ratio takes the price of the Standard
& Poor’s 500 index and divides it by the sales (not
profits) of the companies making up the index. By
disregarding profit margins, the P/S ratio tunes
out the wild fluctuations that occur in companies’
reported earnings as the business cycle migrates
from boom to bust and back to boom again.

As you can see [if you have access to the newsletter], the P/S now stands at its highest level of the past decade—and about 65% above its average since 1950.

- Profitable Investing March 2014

*** [2/26/14]

TSLA is acting like a dot.com stock of 15 years ago.  Is the bubble back?

What's the Nasdaq's PE? At year-end 1999, it was about 200, according to analyst Brian Rauscher of Morgan Stanley Dean Witter. Growth companies--with prospects for above-average increases in profits--might be expected to have above-average PEs. Sure. In the late 1980s, the Nasdaq's PE fluctuated between 20 and 25. By 1991, it was about 40. In late 1998, it neared 100 and then doubled in the next year.

According to wsj, the current P/E of the Nasdaq 100 is 21.69.  A year ago it was 16.60.  Forward P/E is 18.76.  Surprisingly, the current P/E of the Russell 2000 is 84.68.  A year ago, it was 32.56.  Forward P/E though is a more reasonable 18.90.

What about TSLA?  TSLA has yet to turn a profit, but it's expected to be profitable this year and the forward P/E is "only" 72.5.