Yesterday, the value of the S&P 500 index closed at yet another all-time high at 2185.79. The trailing 12-month P/E ratio for the S&P 500 now stands at 19.5, based on yesterday’s closing price (2185.79) and trailing 12-month EPS ($111.89). Given the high values driving the “P” in the P/E ratio, how does this 19.5 P/E ratio compare to historical averages? What is driving the increase in the P/E ratio?
The current trailing 12-month P/E ratio of 19.5 is above the three most recent historical averages: 5-year (15.9), 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, when the trailing 12-month P/E ratio was 22.3. On that date, the closing price of the S&P 500 was 1075.51 and the trailing 12-month EPS was $48.19.
Back on December 31, the trailing 12-month P/E ratio was 17.9. Since this date, the price of the S&P 500 has increased by 6.9% (to 2185.79 from 2043.94), while the trailing 12-month EPS has decreased by 1.9% (to $111.89 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 19.5 today from 17.9 at the start of the year.