Stock Market -- P/E ratio Recovers

The sharp spike in the price of crude led the stock
market to shade the multiple in anticipation of higher
inflation readings for August and perhaps September.
The fast erosion in the price of crude since Katrina
struck and oil market fears were finally realized has
produced a sharp relief rally which restores the p/e ratio
back up close to 17x, and leaves the market content with
a 3.0% inflation expectation. Currently the market reflects
a consensus that the worst in oil's steep price rise has
ended and that Katrina will not produce long
lasting economic damage. Note again though how sensitive
the market continues to be to the price of crude.

Curiously enough, the stock market remains the most
reasonbly priced sector of the capital market.