Market valuations look cheaper on forward earnings, but analysts urge caution

The S&P 500 is trading at about 28 times trailing earnings and 21 times earnings expected over the next 12 months, a gap that can make the market appear more attractively priced than it really is. According to finance professors and valuation researchers cited in the report, the wide spread mainly reflects strong profit expectations rather than a clear sign of cheapness. If companies fail to deliver the earnings growth investors are assuming, valuations could look less favorable. The article notes that forward pricetoearnings ratios depend on forecasts that may prove too optimistic, while longerterm measures such as the CAPE ratio suggest U.S. stocks remain expensive by historical standards. Earnings season due next week will provide a better test of whether current expectations are realistic.