Forward P/E ratios are climbing back toward 18x — the average since 2000. That's above the long-term 15x norm.
Why the shift? Lower rates, cooling inflation, and stronger earnings growth have all supported higher multiples. Markets are pricing in a better environment.
But here's the thing: averages don't justify prices. A 15x multiple reflected decades of varying inflation regimes, rate cycles, and profit margins. The 18x average since 2000 includes two massive bubbles and a decade of unprecedented monetary policy.
Context matters. If earnings growth sustains and rates stay moderate, 18x might hold. If either assumption cracks, multiples compress fast. Valuation is always a function of what you're paying versus what you're getting — and right now, you're paying for optimism.
Watch the earnings, not just the multiple.
Why the shift? Lower rates, cooling inflation, and stronger earnings growth have all supported higher multiples. Markets are pricing in a better environment.
But here's the thing: averages don't justify prices. A 15x multiple reflected decades of varying inflation regimes, rate cycles, and profit margins. The 18x average since 2000 includes two massive bubbles and a decade of unprecedented monetary policy.
Context matters. If earnings growth sustains and rates stay moderate, 18x might hold. If either assumption cracks, multiples compress fast. Valuation is always a function of what you're paying versus what you're getting — and right now, you're paying for optimism.
Watch the earnings, not just the multiple.