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.

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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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