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Smashed Valuations Show S&P 500 Used to Profit Recession

  • Index's forward 12-month P/E ratio is below historical average
  • S&P 500 profits on pace to contract for third straight quarter
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Bear Market Blues: Are Investors Wrongly Positioned?

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The simplest way of explaining the selloff that has driven U.S. stocks closer to a bear market than any time in five years is that investors are adjusting to a new earnings reality. Based on share valuations, that reality is pretty bleak.

While equity analysts continue to predict a rebound in Standard & Poor’s 500 Index profit this year, stocks are no longer buying it. Evidence can be seen by plotting the forward price-earnings ratio against its historical average, a comparison that could be read as suggesting investors don’t see profits rising anytime soon.