Falling share prices and the US economy

Martin Feldstein | Harvard University | 31 October 2018

The Standard and Poor's 500 index of share prices has fluctuated wildly during 2018 but has returned to nearly the same level that it was at the beginning of the year. The absence of a net fall for the year reflects the combination of a rise in corporate profits and a 12% decline in the price-earnings ratio. And the fall in the price-earnings ratio is an indication of the likely evolution of share prices in the next few years.