SPX vs P/E Ratios 1900 - 2015

Stock performance has been weak for the past 15 years. If history
is a guide, it's likely to stay weak for at least another 10 years.
Why? Because stocks are still fantastically expensive relative to most
of recorded history. Credits: Business Insider UK

Business Insider UK (Oct 4, 2015) - Over the past century, the market has gone through distinct "bull" and "bear" phases. These last, on average, 10-25 years each. [...] Some people think the latest "bear" phase ended in 2009. They also think we're in the middle of a glorious "bull" phase again. But based on valuation — stock prices relative to the fundamentals of the underlying companies — we unfortunately appear to still be in the middle of the latest "bear" phase. [...] Throughout history, stock prices have loosely gravitated around the "fundamentals" of the underlying companies — namely, earnings. Specifically, stocks have traded in a range of 5X cyclically adjusted earnings (at bear-market lows) to 44X earnings (at the peak of the biggest bull market in history — the one that ended in 2000). The "average" P/E ratio over this period, meanwhile, has been about 15X. When you add P/E ratios to the charts above, you quickly notice a pattern: Sustained bear-market periods have begun when the P/E is very high (~25X+). Sustained bull-market periods, meanwhile, have begun when the P/E is very low (5X to 9X).