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US Stocks Real Returns vs PEses from 1890

The real stock market return over 17 year periods historically has the best correlation with the PEses (real price / simple exponentially smoothed real earnings). Longer or shorter periods have a weaker correlation. The chart shows the return for a 17 year period with the PEses at the beginning of the period. The green PEses scale or axis is inverted to show that a period of strong stock market return begins with a low PEses, while a period of weak return begins with a high PEses. The last point of the PEses suggests what the return for period beginning last month and ending in 17 years will be.

The 17 year return is calculated using the stock market total real return index.