Can’t compare 1930 economy with 2018 economy and market. Graphs are useful indicators for historical trend to try and predict the market but as it is shown, it had never really follow the exact model. It is like climate change. Using computer models with pass event to try and predict future climates. There are many factors that influence the market than just P/E.
The stock market is worth over 30 Trillion now.
The P/E analysis does not need to concern itself with the SIZE of the stock market; that aspect is irrelevant. The P/E is about the price of any stock vs the annual earnings. The total average P/E is an average for the market, or a market segment. There will be companies which on their own circumstances can, maybe, justify a higher P/E than some other countries. That individual P/E does not matter, as far as looking at the whole market, than the average for the market.
It is not about the P/E “influencing” the market. IT IS up to individual investors and/or analysts whether or not an individual company’s P/E, or a markets average P/E is considered in making their decisions.
The history of the average P/E is not a “model” or a “theory”, it is just the data as it is/was.
There are macro economic reasons, no matter the economic period, as to why stock markets have ballooned to a bubble when the average P/E has been a lot higher than the long term average P/E, and why stock markets have still grown/expanded - in recessions or not - when the markets average P/E has been closer to the historical long term average P/E.
Your arguments are just like the arguments before the dot.com and high-tech bubbles burst - “it’s a different economy”, “it’s a different market”.
Why not through out the Constitution, it’s a “different model” and everything is different now?
History knows better. Things often appear more “different” than some other time than they really are, in the most fundamental sense.
How old is the world economic history that understands long term average sustainable interest rates are on average 4%? Hundreds of years; and neither bubbles nor depressions, central banks or fancy financial instruments have altered that. Average - across and economy - possible business earnings as a % have macro-economic limitations as well, regardless of “investor expectations”. That is why they HAVE gone up and down as can be predicted not by “models” but just by the data that shows what the P/E behavior was leading up to big market downfalls.