Boomer Retirement

All credit to www.frbsf.org/publications/economics/letter/2011/el2011-26.html

As graphs go, this is pretty compelling.

We construct the P/E ratio based on the year-end level of the Standard & Poor’s 500 Index adjusted for inflation and average inflation-adjusted earnings over the past 12 months. We measure age distribution using the ratio of the middle-age cohort, age 40–49, to the old-age cohort, age 60–69. We call this the M/O ratio.

In short, stock valuations increased as the boomers grew into middle age and saved. As the boomers grow into old age and draw down their savings, stock valuations are likely to decrease.

P/E ratio and M/O ratio

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