Bubble, Bubble… Toil and Trouble…

PEmax eliminates distortions in the price/earnings multiple caused by sharp falls in earnings during recessions. It uses the highest trailing earnings rather than simply the most recent earnings. This provides a better estimate of future earnings potential than using more recent results during a market downturn.

The current PEmax of 26.93 in the graph above, uses the index at December 31, 2020 and the highest trailing earnings of 139.47 for the 12 months ended December 2019. Using expected earnings of 95.22 for the 12 months ended December 2020 would yield an even higher PE ratio….

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