Highest Forward 12-Month P/E Ratio For the S&P 500 in More Than 3 Years

On November 7, the forward 12-month P/E ratio for the S&P 500 was 22.2, which marked the second straight day the P/E ratio for the index was above 22.0. This forward 12-month P/E ratio was based on a closing price of 5973.10 and a forward 12-month EPS estimate of $269.44. How does this 22.2 P/E ratio compare to historical averages? What is driving the recent increase in the P/E ratio?

The forward 12-month P/E ratio of 22.2 on November 7 was above the five most recent historical averages for the S&P 500: 5-year (19.6), 10-year (18.1), 15-year (16.4), 20-year (15.8), and 25-year (16.4). In fact, prior to the past two days, the last time the forward 12-month P/E ratio was above 22.0 was April 27, 2021 (22.2). However, it is important to note that even at 22.2, the forward 12-month P/E ratio is still below the peak P/E ratio of the past 25 years for the index of 24.4 recorded on March 23, 2000.

At the sector level, ten sectors had forward 12-month P/E ratios on November 7 that exceeded their 25-year averages, led by the Information Technology (30.3 vs. 20.9), Materials (20.7 vs. 14.8), Industrials (23.5 vs. 16.9), and Consumer Discretionary (27.1 vs. 19.9) sectors. A 25-year average P/E ratio is not available for the Real Estate sector.

What is driving the rise in the forward 12-month P/E ratio? On August 7 (about 3 months ago), the forward 12-month P/E ratio was 19.7. Since August 7, the price of the S&P 500 has increased by 14.9%, while the forward 12-month EPS estimate has increased by 1.9%. Thus, the increase in the “P” has been the main driver of the increase in the P/E ratio over the past few months.

It is interesting to note that analysts were projecting record-high EPS for the S&P 500 of $239.69 in CY 2024 and $274.59 in CY 2025 on November 7. If not, the forward 12-month P/E ratio would have been even higher than 22.2.

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