Here's why PE ratio's matter as the following chart shows the return 10 years forward from the starting average PE i.e if the stock market is trading on an average PE of 27 than can basically be expected to go nowhere for the next 10 years. Whilst the lower the PE the higher the expected return (on average), where the safe zone for investing is at a starting PE of between 10 and 20. Note graphs is as of September 2021, see below for updated ratios.

The current PE ratios vs where they were a year ago :

DJIA 17.4 / 23.66 (74%)
Dow Transports 11.8 / 57.25 (21%)
Nasdaq 22.9 / 36.35 (63%)
S&P500 17.8 / 31.41 (57%)
AI portfolio Top 6 AI stocks 18.8 vs 42 (45%)
AI portfolio Top 10 AI stocks 16.5 vs 37(45%)
AI Sleepers 9 vs 15.8 (57%)
AI Portfolio 21 stocks - 16.2 vs 28.8 (56%)

The AI stocks portfolio has delivered both to the upside and now to the downside i.e. stock prices FOMO'd during 2021 to ridiculously high valuations and then collapsed all the way to BELOW the indices during 2022 which now makes most dirt cheap because you know what's going to happen during the next bull market, rinse and repeat ;)

The bottom line is AI tech stocks cycle between over valuation and under valuations where today the stocks trade SUB indices, so whilst the indices may go nowhere, the AI tech stocks definitely will once more reach a state of over valuation as 2021 illustrates. Whilst today the same investors who were FOMO-ing when I was SELLING are now waiting for the CRASH in the indices all whilst AI tech stocks enter into a STEALTH bull market which will leave most gob smacked as to how the hell did the tech stocks they were waiting to buy recoup most of their bear market declines.

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By Nadeem Walayat

http://www.marketoracle.co.uk

Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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