Trailing 12-Month P/E Ratio Hits 19.4

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.

Related: EPS Estimate Cuts Smaller Than Average for S&P 500 in Q2

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.