I’m sure we’ll be hearing all kinds of explanations of today’s drop... But you want to remember Robert Shiller’s classic real-time study of the 1987 crash. Basically, the crash had nothing to do with any news item. Investors sold because — drum roll! — prices were falling.The price-to-earnings ratio for the S&P 500 is now 11.6, compared to an historical average of about 14. In the dozen years I've been investing, the S&P 500's P/E ratio has never been that low. (Damn bubbles!) As A Random Walk Down Wall Street points out, on average, the lower the market P/E ratio, the greater the future stock market returns over the long haul.
Here is Morningstar's market valuation graph:
Update: According to Yahoo! Finance, the P/E for the S&P 500 is 13.5, not 11.6.
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