The market took a decent dive today because of all the unrest in the Middle East, the continuing drop in housing prices, and such. But what does it all really mean, is the stock market too high and this is a simple correction, or is the market being unfairly punished? I ran a simple PE analysis on the Dow Jones Industrial to see if I can get a rough idea on the value of the “market” as a whole.
Why the Dow Jones? It’s a widely followed index, many people consider it a good proxy of the market (that’s a topic for another post) and most importantly the index only has 30 stocks making it much easier to analyze than the S&P 500.
The Results: The Dow Jones, compared to its historical PE average, is undervalued.
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