>Christian Gregory asks:
>
>>> Doug Henwood wrote:
>>>
>>> Stocks are priced for a recovery in profitability
>>
>> By the way, what is the formula for figuring how how the price of a
>> stock predicts or anticipates profits--I mean, in real number terms?
>> How is the price or market capitalization related to earnings
>> expectations?
>
>They aren't; Doug was being sly along the lines of "If you thought it
>was great at $100, you'll LOVE IT at $40" . . .
>
>More seriously, his sentiment is captured only in a hindsight way and
>not in any predictive way. If he had such a formula, he wouldn't share
>it here :-)
The price-earnings ratio on the S&P 500 is at a record high - because E has fallen much more than P. Traditionally return is inversely correlated with valuation - though there are always timing problems with that, because there can be persistent periods of over- or under-valuation (mainly over-). Earlier bear markets usually ended with very low P/E ratios (because P fell more than E). Maybe it's different this time.
Doug