Understand The Truth About P/E Ratios

The Macro Institute's Weekly Economic Primer

Author

The Macro Institute
March 30, 2026

In partnership with

(If you’re enjoying the videos, we would really appreciate it if you could take a second to watch it and “Like” it on YouTube. It helps our content reach more and more people! Thank you!)

Don’t have time to watch the whole video? Here’s 5 Key Takeaways:

🔹 Are P/Es Inversely Correlated With Interest Rates?: Students and young investors are taught that P/Es and Interest Rates are always inversely correlated.

🔹 The Relationship Between P/Es & Interest Rates Varies: In reality, this relationship varies across difference investment regimes. There have been periods where P/E ratios and interest rates are negatively correlated and other periods where this correlation is actually positive.

🔹 Investors Spend Far More Time On EPS Than Multiples: Student’s and young investors spend far more time learning about how to forecast and analyze earnings than they do valuation multiples.

🔹 P/E Expansion Is Crucial For S&P 500 Performance: Despite the lack of focus on multiples, P/E ratio expansion has been responsible for a huge proportion of returns in the S&P 500 over time.

🔹 Equity Multiples Are Driven By Many Cyclical Forces: The real driver of P/E ratios is macro forces. There is no silver bullet, but if investors spend time analyzing the macro backdrop they’ll be much better off than simply assuming P/E ratios are going to move inversely with interest rates.

Miss our last few videos? No worries. Here are some of the most popular 👇

Unlock The Skill Of Macro Investing

How should you react to oil prices spiking? What are the investment implications of reduced immigration? What about a more restrictive trade policy?

The world is moving fast. 

Francois Trahan’s macro investment framework can help slow things down.

We condensed the same framework he has used over his 30+ year career working on Wall Street into an online Macro Investing Bootcamp.

Learn how to find signal in the noise and simplify today’s complicated economic backdrop.

Macro Data Center

How 2M+ Professionals Stay Ahead on AI

AI is moving fast and most people are falling behind.

The Rundown AI is a free newsletter that keeps you ahead of the curve.

It's a free AI newsletter that keeps you up-to-date on the latest AI news, and teaches you how to apply it in just 5 minutes a day.

Plus, complete the quiz after signing up and they’ll recommend the best AI tools, guides, and courses — tailored to your needs.

The Macro Week Ahead

📆 Last Week’s Data Key Takeaways

🔹 Richmond Fed Snapped Contraction Streak, While KC Surged: The Richmond Fed jumped 10 points to 0 (vs -5 forecast), ending 12 consecutive months of contraction. The KC Fed rose to 11, the highest level since July 2022, with production and new orders driving the expansion. Both districts showed improving forward expectations despite elevated uncertainty around energy costs and tariffs.

🔹 Import & Export Prices Surged On Energy Spike: Import prices jumped +1.4% in February, the largest monthly rise since April 2024, driven by petroleum (+2.5%) and natural gas (+24.7%). Export prices surged +1.5%, the largest gain since May 2022, led by natural gas, crude, and nonferrous metals. The Iran-driven energy shock is now clearly flowing into trade prices.

🔹 Construction Spending Unexpectedly Fell: January construction spending dropped -0.3% (vs +0.1% forecast) to a $2.2 Trillion annual rate. Private residential spending slumped -0.8% on record cold temperatures and elevated mortgage rates. Public construction rose +0.6%, led by highway spending (+3.3%).

🔹 Michigan Sentiment At Lowest Point Of 2026: Michigan Sentiment for March came in at 55.5, down from 56.6. This was the lowest reading of 2026. The Iran conflict weighed heavily, with expectations for personal finances falling -7.5%. One-year inflation expectations held at 3.4% as long-run expectations eased to 3.2%.

🔹 Claims Came In Low, While Productivity Was Revised Down: Initial claims rose 5,000 to 210,000 (vs 211K forecast), staying well below stress levels. Q4 nonfarm productivity was revised down to +1.8% annualized from the preliminary +2.8%, reflecting weaker output growth.

Macro Job Board

Analyst will engage in detailed, technical discussions with traders and researchers by providing macro updates and quantitative analyses, presenting their logic and reasoning grounded in data, numbers, probabilities, and statistical insights, and addressing any follow-up questions with clarity and precision.

Working closely with the chief LatAm economist, the analyst will: analyze and interpret high-frequency economic data releases, develop and maintain databases, forecasting models, and proprietary economic indicators, and build quantitative tools to forecast economic growth, inflation, and interest rates.

This role will work closely with the Senior Portfolio Manager to develop systematic macro strategies, focusing on alpha research, including idea generation, statistical analysis, back testing, and implementation. Must independently explore and develop new ideas while collaborating in a team-oriented environment.

What We Read This Weekend