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.
This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.