The overall market is highly volatile and affected by generally long secular cycles.
Further, returns in the stock market depend upon the level of and trend of the inflation rate.
Current and recent levels for the P/E ratio suggest that expected returns will be disappointing for many investors.
The stock market has demonstrated longer-term secular bull and bear cycles.
Secular cycles are extended periods with a common trend, the trend in the P/E ratio.
The P/E ratio cycle corresponds with inflation rate cycles as they move toward and awav from periods of price stability (low inflation).
Conventional stock market wisdom has promoted a fundamental relationship between P/E ratios and interest rates.
As reflected in this chart, P/E ratios increase when the inflation rate trends toward price stability (near 1% inflation) and P/E ratios decline when the inflation rate trends away from price stability.
The result is a “Y Curve” effect.
All said and done … high inflation DEFLATES P/Es and stock prices.