Not quite sure where your three years come from, but I give you that the correlation between Stock Market Index (here S&P 500) and the relevant PE was over the last 20 years somewhat counter intuitive (blue line is the PE, black line is the index):
Attachment 11647
(chart courtesy to : https://www.marketwatch.com/story/th...ght-2020-05-09)
For long periods it looks like the higher the PE (i.e. the lower the earnings), the higher the Index, which does not make sense in a rational market.
Obviously - there are other factors in the play like reserve banks inflating equity prices by slashing interest rates and by sprinkling free money (QE) around. Easy to see in the chart how stocks getting dearer after the GFC ...
The questions I see are:
1) Given that stock prices don't follow any natural laws ... at what stage will the majority of stockholders think that the PE ratio they are paying is too high? In the dotcom bubble it was 24, in the GFC it was 15 and now it is close to 21.
2) Is the current PE ratio (21) which is still based on last FY's earnings really reflecting the forwards earnings, or is it more likely that earnings crash rather than go up (or stay constant) from here? If earnings go down by 50% in average than this would double the PE. Is a PE of 42 still a sensible price to pay for a stock?
Anyway - what I can see in this chart is that the PE (again, based on last years earnings) is already coming close to its 2000 peak (dotcom bubble), while the index is basically at an all time high.
I think this is a reason to be cautious, but if you think that trends only can go into one direction, then good luck with your investment strategy ... :p;