Over the last few months, there have been many market pundits that have been talking about the high historical valuation of the US stock market. The term bubble may be the most frequently occurring word used in many newsletters and chat rooms as of late other than GME. There are many ways to measure valuation in the market but the most common is the price earnings ratio (P/E). While the metric is useful as a broad snapshot for historical perspective, it is also very misleading as the price/earnings ratio is counterintuitive for multiple reasons. The P/E ratio is simply the price of a stock divided by the earnings of the company’s annual run rate of earnings. In other words a stock trading at $50 and has earnings of $4 for the current year, then the P/E ratio is 12.5. The current value of the S&P 500 is 3800 with a 2021 earnings estimate of $170 implies a P/E ratio of 22.4. This is above the high end of the historical range.