At the close of the stock market on 3/11/25, the average price-to-earnings (P/E) ratio of the S&P 500 during the month of March was 27.8, or 36% above the modern average of 20.4. The P/E ratio is a key measure of companies’ values. It is equal to the costs of their stocks divided by their annual earnings. High P/E ratios often indicate that stock prices are overvalued and headed for a correction, or they may indicate that higher earnings are coming in the future. One of the main drivers of high P/E ratios in recent decades has been the Federal Reserve creating trillions of dollars in new money to fund government deficit spending. This can artificially inflate the prices of assets like stocks and real estate, a phenomenon called “asset inflation.” Asset inflation increases the wealth of those who already own assets, while making homes, stocks, and other investments less affordable for people with little wealth.