This might be a basic bitch question. Apologies.
Does the narrative of an incoming "crash" make sense to everyone? I often see P/E of S&P Valuation as a marker of the market being "overbought". Different sources suggest P/E is 28-32. And the other markers of "overbought" seem to be using componenet of P/E in some way i.e Shiller P/E.
What should the P/E of favourable times to invest be? From what I am reading, factories vs tech companies cannot be evalualted using the same P/E ratio ranges. IF the make up of S&P is changing, to be dominated by tech companies, should the P/E ranges of evaluation also change? I.e P/E of PE 20-25 might be okay vs P/E in the 15-20 before
Doesn't passive investing like ETF increase P/E at baseline? I understand the connection isn't direct. But if there are millions of investors investing blinded, they are going to increase the price of each share for those individual stock pickers, especially for those companies that are heavily weighted in most ETFs (i.e Mag 7)? Is there any way to correct for this phenomenon?
Isn't the overall free cash flow for S&P more important? Has that really changed?
I am not suggesting that this is not an overbought environment. If there are two strong narratives, the truth is probably in the middle. This would suggest a small correction is expected, but maybe not 2008 type?
I think the counter arguement to my discussion above, could be that even if the stock market isn't obscenly overbought, the USA/China policies are causing signficant economic disruption and market inefficiencies. Therefore, a stock market disruption should be anticipated if there is a global recession. But i would be interested to see what everyone thinks.
Apologies if I have completely misunderstood these concepts. Still in the learning phase.