DEFINITION of 'Rule Of 18'
A rule whereby the sum of the inflation rate and the P/E ratio of the Dow Jones Industrial Average is an indicator of the direction of the stock market. If the total is above 18, stocks are supposed to decrease. If the total is under 18, then the stock market is expected to increase.
Next Up
BREAKING DOWN 'Rule Of 18'
For example, if the P/E ratio for the Dow were 14 and the annual inflation rate were 3%, their sum would equal 17. This number would indicate that the stock market will increase.
RELATED TERMS

P/E 10 Ratio
The P/E 10 ratio is a valuation measure, generally applied to ... 
Dow Jones 65 Composite Average
The Dow Jones 65 Composite Average is an index comprised of 65 ... 
Price/Earnings To Growth  PEG ...
Price/Earnings to Growth (PEG) is a stock's price to earnings ... 
BroadBased Index
A broadbased index is designed to reflect the movement of the ... 
Market Average
A market average is a measure of the overall price level of a ... 
Dow Jones Wilshire MidCap Index
A marketcapitalization weighted index maintained by Dow Jones ...
Related Articles

Investing
Can Investors Trust The P/E Ratio?
The P/E ratio is one of the most popular stock market ratios, but it has some serious flaws that investors should know about. 
Investing
Are stocks with low P/E ratios always better?
Is a stock with a lower P/E ratio always a better investment than a stock with a higher one? The short answer is no. The long answer is it depends. 
Investing
Comparing the P/E, EPS And Earnings Yield
Here are three ratios that help investors value stock returns. 
Investing
Differences Between Forward P/E And Trailing P/E
The most common types of price to earnings ratios are forward P/E and trailing P/E. Find out how they differ and the advantages and drawbacks of each. 
Investing
Explaining Forward PricetoEarnings Ratio
The estimated P/E of a company is often used to compare current earnings to estimated future earnings. 
Investing
Profit With The Power Of P/E Ratio
The P/E ratio is a valuable tool when deciding on an investment, but it's not the only thing to consider. 
Trading
ValuePriced Stocks to Watch in 2016 (AMBC, VIPS)
In terms of P/E and Forward P/E these stocks are trading at low valuations. Watch these technical price levels for buying opportunities in 2016.
RELATED FAQS

Where can I find the P/E ratios for the Dow and S&P 500?
The accurate P/E ratio of an index, or the index's total price divided by its total earnings, can sometimes be difficult ... Read Answer >> 
How do I calculate the P/E ratio of a company?
The P/E ratio shows whether a company's stock price is overvalued or undervalued and can reveal how a stock's valuation compares ... Read Answer >> 
Why Are P/E Ratios Higher When Inflation Is Low?
P/E ratios are generally higher during times of low inflation, but why is this the case? Read Answer >> 
What is the average pricetoearnings ratio in the financial services sector?
Learn how to calculate and use the price to earnings (P/E) ratio when analyzing an investment and what the financial services ... Read Answer >>