To summarize, the P/E ratio expansion or contraction depends on many factors such as future earnings expectations, economic conditions and investor sentiment.  A strong economy, low interest rates and optimism on future earnings normally command a higher P/E ratio and rising stock market. Conversely, a weak economy, rising interest rates and low earning expectations will drive the P/E ratio and stock market lower.

Therefore, shorter-term market performance is more related to P/E influencing factors like earnings expectations, economic growth, interest rates and market sentiments.

Related: Trade, Tariffs & Tirades: A Primer on What Has the Markets in a Dither

The views and data presented here are for the purpose of information exchange only. This is not a solicitation or offer to buy or sell any security. You must do your own due diligence and consult a professional investment advisor before making any investment decisions. All information posted is believed to come from reliable sources. We do not warrant the accuracy or completeness of information made available and therefore will not be liable for any losses incurred.

Henry Ma is the President & CIO at Julex Capital Management, a participant in the ETF Strategist Channel.

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