P/E ratios have headed downwards on 10-year valuation slump

But is the market currently pricing in too much pessimism?

The substantial downward movement in company valuations over the past decade in terms of their price to earnings ratio is reflected in this week's graph. A P/E ratio - the measure of how much investors are willing to pay for stocks in a company compared to its overall value - is calculated by dividing the market price per share by the earnings per share over the past four quarters, or the expected earnings over the next year. A high P/E ratio indicates investors are willing to pay a large amount on the basis they expect earnings will increase substantially. This scenario is clearly se...