Post-pandemic prospects for higher inflation (and interest rates) suggest the dramatic expansion in P/E multiples of the past few years may have run its course. While valuation levels are unreliable market-timing tools, the key question facing investors is whether a P/E mean reversion would be damaging or benign for stocks.
P/E multiples look elevated in both absolute and relative terms. They are well above their 10-year averages globally. Topping the list, the Russell 1000 now stands at a forward P/E of slightly above 23×, roughly eight points above its 10-year average of 16.1× and its global peer-group average of 15×.
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