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High Valuations Do Not Trigger A Recession

Published 19/03/2019, 08:24
Updated 09/07/2023, 11:32

The number of investors and media outlets suggesting that high valuations are likely to cause the next recession seems to have increased lately. However, valuations are seldom the sole trigger for an economic downturn as today’s graph shows. The price/earnings (P/E) ratios of the S&P 500 Index have varied greatly just before the start of past recessions. If anything, P/E ratios were somewhat below the long-term average ahead of a recession. Perhaps it is the vivid memory of the burst of the dot-com bubble, and the economic downturn that followed it, that has led investors to believe that high equity valuations are associated with future recessions.

S&P 500 Index

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