FA Center: This Wall Street magic trick makes stocks appear cheaper than they are

Some Wall Street analysts are playing games with the S&P 500’s price/earnings ratio.

These analysts are calculating the S&P 500’s SPX, -0.09% P/E ratio on the basis of what they think corporate earnings will amount to in the coming calendar year. Nowadays, that means their P/Es are based on 2019 earnings — a number that won’t actually be known for another 20 months or so.

Such calculations are profoundly speculative, needless to say. Think about all the things that could sabotage analysts’ estimates. The still-nascent global trade war could escalate and bring about a worldwide recession, for example.

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