Dow Jones futures dip below 37,500

Much earlier this morning a Quick News update touched on the relative valuations of the US stock markets when looking at what was a record year for the Dow Jones and the Nasdaq 100. In covering the current P/E ratio for the Dow Jones, it was noted as being around 22, as of the close on December 31. So, to explain what exactly that is for those that do not know. It is the multiple at which the index is trading over average earnings. That means the index is trading at 22 times its earnings. Thus in effect, if the index was not to move at all and there was no growth in dividends in the future, it would take 22 years for you to get your money back, based on dividend income alone. So, of course that does not account for any gain or loss in the index or dividends over the period. So, 22 years is still a long time. I have actually revised that figure to 27 from earlier, after further research to average out forward and trailing P/E. Either way, that is high by historical standards, with the average being nearer the mid teens over the past 20-30 years. So does this all mean the Dow is overvalued as of the close on December 31? Well, yes it does and we have to factor in what was a truly extraordinary 2023 for the index. It closed on Friday at 37,689 after setting a record at 37,778 earlier in the week. It is currently priced to reopen this afternoon at below 37,500, just now at around 37,480. So, it seems like there is some caution and perhaps a reality check to start the New Year