Article at a glance:

Living with lower market expectations

Although "irrational exuberance" may have led investors to accept inflated price-to-earnings ratios in the late 1990s, in general the market tends to do a good job valuing companies. A comparison of actual P/E ratios with the long-term economic performance of companies offers some assurance that current market valuations are broadly in line with long-term economic fundamentals.

The take-away