In the past I said the DJIA at around 8,000 is accurately valued. Understand this is ACCURATELY valued, meaning not a deal, nor over priced. It's about where it should be. And the way I base this is on the S&P 500 P/E ratio.
Historically the S&P 500 P/E ratio trades around 15 - ie- you pay $15 in stock price for $1 in earnings. The hope is, with the recent drop in stock prices, stocks are now below this average, perhaps even as low as a P/E of 7 which it was back in the early 80's and for most of the 70's. The problem is, even with the drop in stock prices, it is not;
Currently the stock market is trading around a P/E of 14. A bit lower than the historical average, but not a "steal" by any means.
Furthermore, this says nothing about future earnings which are bound to be lower as the economy continues its trudging through a recession. If earnings drop, which I'm betting they will, this will only provide less E for the P that you're paying, and thusly P will have to drop.
Sorry to be the bearer of bad news, but good or bad, truth is truth.
However, there is some solace, because Obama will fix everything.
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