1. The S&P 500 P/E ratio is not 25
You are incorrect. According to Standard & Poor’s (who happen to run the index – see reference at bottom of this post) they reported a P/E of 17.83 as of 1Q 2006. Current earnings on the S&P 500 are coming in about 10-14% higher than a year ago and the index has not climed that much in the same period. You are off by about 40% ! If this is one of the reasons you expect a correction of a certain magnitude then be prepared to be off by 40%.
By the way a P/E of 17.83 corresponds to and earnings “yield” equivalent of 5.6%. Compare this to alternative investments.
2. The current rally has not been limited to a few Dow stocks. It has been broad. See previously posted charts showing broader indexes outperfming the Dow since 2003 and tracking the Dow since the start of the summer rally.
You may be correct that the stock market corrects or declines over the next six months. But you are basing your decision on false premises not facts.
