Although the S&P 500 has risen to a record high in the wake of Donald Trump’s victory, we do not think that it is in a bubble. Admittedly, its price/earnings ratio is now about double the long-run average after adjusting for the business cycle. But we think it is wrong to assume that this average is a “normal” level to which the ratio will inevitably revert. In our view, the normal level of the price/earnings ratio is much higher than it used to be.
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