Shortly after the opening of the U.S. stock market today (6/16/22), was the price-to-earnings ratio of the S&P 500 significantly higher or lower than its average over the past century?
The price-to-earnings ratio is a key measure of companies' values. It is equal to the costs of their stocks divided by their annual earnings. Shortly after the opening of the U.S. stock market today, the price-to-earnings ratio of the S&P 500 was 18.6, or roughly equal to its 16.0 average over the past century. In recent years, this figure has often been higher than 25. Part of the reason for this is that the Federal Reserve created trillions of dollars to enable the federal government to dole out more than $5 trillion in "Covid relief" money. Such spending can artificially inflate the prices of assets like stocks, real estate, and commodities. This phenomenon is called "asset inflation," and it increases the wealth of those who already own assets, while making assets less affordable for people with little wealth.