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As Dollar Affects S&P 500 P/Es, Rising P Seen Surpassing Lower E

Stock valuations may climb more than enough in response to a rising dollar to counter the currency’s effect on earnings, according to Savita Subramanian, chief U.S. equity strategist at Bank of America Corp.’s Merrill Lynch unit.

As the attached chart shows, that’s what happened as the dollar rallied between 1995 and 2002, a period that Subramanian cited yesterday in a report. The projected price-earnings ratio for the Standard & Poor’s 500 Index peaked in December 1999 at 26.9 times projected earnings, up from 12.6 times in January 1995, according to data compiled by Bloomberg.