S&P 500 P/E Ratios at 20-Month High

Eddy Elfenbein submits: Thanks to Wednesday's surge, the P/E ratio of the S&P 500 is up to 16.87 (I use smoothed operating earnings). That's the highest it's been since August 2005.

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It's hardly excessive, but we're starting to see the impact of slower earnings growth. At the start of the year, first-quarter earnings were projected to be up 8.7%. They'll probably be up 4% to 5%. Fortunately, most of the damage is confined to the autos and homebuilders.

So far.

Comments

[CrossProfit]

A ttm PE of 16.87 is not a problem when earnings grow at 13% to 20% YOY as was the case for 2006. Should earnings growth slow to 7% / 10% or less, this could pose a problem.

Strong international economic growth should mitigate the results from a US slowdown. Companies (like XOM) that derive two thirds (66%) of their revenues from overseas should fair better as well. In general, exporters and foreign base companies should do well in 2007.

We do not have a current S&P 500 company breakdown for over 50% exports by revenue. If you have one, please post it.

Disclosure: Opinion of CrossProfit (IL) analyst and may not be the consensus at CrossProfit.com.