NEW YORK (TheStreet) -- Stocks zoomed to new highs on reasonably good news for the U.S. economy and the Bank of Japan's announcement of quantitative easing.
Just a few weeks ago markets were plunging, and analysts writing on the nation's most prestigious financial pages cautioned that stocks were historically overvalued.
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On Oct. 15, I wrote in the TheStreet: "Don't Panic Ahead of a Rebound as Stocks Are Not Overvalued." And that's still true. The S&P 500 (SPY) , which accounts for about 80% of the publicly traded shares in the U.S., and with a price-to-earnings ratio at 18.68, is still trading below its 25-year average P/E of about 18.90. And estimated earnings for the next 12 months indicate a P/E ratio of only 16.65.
The fundamentals of capital formation and stock market valuations have changed. Stocks are capable of maintaining a much higher P/E ratio than that historical average going forward. Going forward, expect more volatility -- but don't panic! Next time you read in the Wall Street Journal that stocks are overvalued, or next time your broker calls, indulge in an earthly pleasure. Just tune out the noise.
At the time of publication, the author held no positions in any of the stocks mentioned.