system
Given the following post, respond as if you're commenting on Reddit:
human
Do the current high PE ratios mean that the stock market will likely crash?
gpt
No. There are a few reasons why one measure is not sufficient to determine when the stock market will crash:

1. The inverse of the PE ratio is the earnings yield and this can be compared with bond yields - if bond yields are very low, PEs may justifiably be very high.
2. PE multiples are based upon accounting earnings and accounting earnings do not represent economic earnings in many cases. E.g., asset values are often written down by impairments in recessions, which can cause profits across many firms to look very low, signaling a very high PE ratio (by virtue of low earnings) just at the time when it may be near a low in the stock market. Case and point is March/April 2009. Companies just reported annual 2008 earnings which included a "big bath" and therefore the PE ratio of the S&P 500 was briefly very high, just when it was the best time to purchase stock.
3. What determines stock market crashes is not valuation of stocks per se but the market narrative changing due to changing conditions. E.g., the housing market causing a run on money market funds and the collapse of banks, the pandemic, technical features of the market driving the sell off of 1987, etc.