Trimming the Fat without Losing the Muscle:
A “Healthy” Correction for the S&P?

By the end of the first quarter, fundamental analysts had become concerned that price/earnings (P/E) multiples had become very extended, showing a “pricey” bull market. The recent corrective action in the market has helped relieve this condition. The price has backed off, and the forward earnings estimates have remained stable due to continued optimism by industry analysts. This has allowed the forward P/E ratios to compress, paring back high valuations without any corresponding earnings estimate cuts. For instance, the S&P 600 Small Cap forward P/E has fallen 11% from its March 18th high.

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