The stock market is going gangbusters — but whether this reflects the economy’s underlying strength or runaway speculation is a question that stumps many experts. Hence, the need for this column: a primer on the red-hot stock market. Will it sustain the economy or ultimately kill it?
The boom is undeniable. In 12 out of the first 15 trading days of 2018, stocks reached record highs, with an overall gain of 6 percent, worth about $1.9 trillion, according to Wilshire Associates. Since Donald Trump’s election on Nov. 8, 2016, stocks are up one-third, or $8.4 trillion.
Nor is there much quarrel that, at present levels, stock valuations are “stretched.” In layman’s language, this means that stock prices are high relative to company earnings (profits). Since 1936, the median price-earnings ratio for the Standard & Poor’s 500 stock index is 17; the present P/E is about 24, says Howard Silverblatt of S&P Dow Jones Indices.
