During the past week (on July 14), the value of the S&P 500 index closed at yet another all-time high, at 2163.75. The trailing 12-month P/E ratio for the S&P 500 now stands at 19.4, based on Friday's closing price (2163.75) and trailing 12-month EPS estimate ($111.36). Given the high values driving the “P” in the P/E ratio, how does this 19.4 P/E ratio compare to historical averages? What is driving the increase in the P/E ratio?
Ratio Tops Historical Averages
The current trailing 12-month P/E ratio of 19.4 is above the three most recent historical averages: five-year (15.8), 10-year (15.9), and 15-year (17.6).
In fact, this marked the highest trailing 12-month P/E ratio for the S&P 500 since February 12, 2010. On that date, the closing price of the S&P 500 was 1075.51 and the trailing 12-month EPS estimate was $48.11.
Back on December 31, 2015, the trailing 12-month P/E ratio was 17.9. Since this date, the price of the S&P 500 has increased by 5.9% (to 2163.75 from 2043.94), while the trailing 12-month EPS estimate has decreased by 2.5% (to $111.36 from $114.19). Thus, both the increase in the “P” and the decrease in the “E” have driven the increase in the trailing 12-month P/E ratio to 19.4 today from 17.9 at the start of the year.
John’s weekly research report, Earnings Insight provides analysis and commentary on trends in corporate earnings data for the S&P 500, including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, Financial Times, The New York Times, MarketWatch, and Yahoo! Finance.