Another important thing to consider is that the current Q1 earnings season has shown that analyst estimates have been too conservative. It could be that the current 12-month forward P/E ratio is way off if those earnings expectations fail to model the massive impact on earnings growth from the current fiscal regime. As you can see, there are many variables at play in such a simple chart.
The next level analysis is to recognise that equities do not behave in isolation but is part of a complex financial system where the most prevalent alternative is bonds. If take the inverse P/E ratio we get the earnings yield, a crude proxy for the implied equity return, and compare it to the yield-to-worst on 7-10Y Treasuries then we get a simple implied equity risk premium. This simple model fails to incorporate earnings growth as the inverse of the forward P/E ratio gives you the perpetual earnings yield. Leaving that aside for a moment, because it does derail our point, we can now compare the implied equity risk premium to that of the subsequent 10-year annualised return between US equities and US 7-10Y government bonds. The implied equity risk premium is basically measuring what we can expect in terms of equity returns over bond returns given the current equity valuation level and prevailing bond yield.