https://www.multpl.com/s-p-500-pe-ratio

For me this is the story. This is a ratio developed by Shiller - same guy who showed houses were over valued 15 years ago. It’s essentially the cost of the S&P 500 over the profits generated by the S&P 500. Simple.

This number spikes before every major crash. Sometimes the spike is 40x, sometimes 130x. You can go poor trying to guess the timing of that spike.

Some of the story in the media is that Coronavirus has suppressed sales volume and corporate profits in the S&P 500 but as Coronavirus is controlled then profits will increase and this ratio will decrease. To get to the historical average (15-20x) you would need profits to double, almost triple. Say if sales volume goes up by 20% is there enough leverage to double profits? Do you believe there’s enough profit in that volume?

As the search for The Greater Fool goes on, perhaps the ratio will spike to 100x before crashing. But you can see that historically the final rush upwards happens in 3-6 months.

Often there is an extrinsic factor that triggers the crash. Could be a meme stock with lots of shorts getting called. It could be a Delta Variant going crazy. Or an Epsilon variant. Could be China rattling sabres. Who knows?

This is not financial advice just a discussion of another metric.