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U.S. stocks, including Micron and Seagate, are getting cheaper as indices climb to record highs

Micron Technologies

Micron Technology is among a large number of S&P 500 companies whose forward price-to-earnings ratios have fallen even as their share prices have risen.

If you ignore the daily warnings that the bull market in U.S. stocks is going to end, and instead look at valuations, you can see something remarkable happening: Stock prices have risen considerably, but price-to-earning valuations have fallen. A year ago it was not uncommon for self-styled market gurus to say that large-cap U.S. stocks were trading at their highest levels to earnings since early 2004 and that stocks were therefore headed for an earth-shattering decline. But over the past year (through Aug. 31), the S&P 500 SPX, -0.17% has returned 20%, while its forward price-to-earnings ratio (based on consensus estimates for the following 12 months) has declined to 16.9 from 17.6. If we look at year-to-date figures, the S&P 500’s forward P/E ratio has dropped from 18.3 on Dec. 31 to the current 16.9 as the index has returned 10%.
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