On October 29, the forward 12-month P/E ratio for the S&P 500 was 23.1, which was the third straight day that the P/E ratio for the index was above 23.0. This forward 12-month P/E ratio was based on a closing price of 6890.59 and a forward 12-month EPS estimate of $298.56. How does this 23.1 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 23.1 on October 29 was above the five most recent historical averages for the S&P 500: 5-year (19.9), 10-year (18.6), 15-year (17.0), 20-year (16.1), and 25-year (16.3). In fact, prior to the past few days, the last time the forward 12-month P/E ratio was above 23.0 was September 2, 2020 (23.4). However, it is important to note that even at 23.1, the forward 12-month P/E ratio is still below the peak P/E ratio of the past 30 years for the index of 24.4.
At the sector level, ten sectors had forward 12-month P/E ratios on October 29 that exceeded their 25-year averages, led by the Information Technology (32.0 vs. 20.3), Consumer Discretionary (29.2 vs. 20.1), Industrials (24.5 vs. 17.0), and Communication Services (22.1 vs. 16.1) sectors. A 25-year average P/E ratio is not available for the Real Estate sector.
What is driving the recent rise in the forward 12-month P/E ratio? On April 8, the forward 12-month P/E ratio bottomed out at a recent low of 17.9. From April 8 to October 29, the price of the S&P 500 increased by 38.3%, while the forward 12-month EPS estimate increased by 7.1%. Thus, the increase in the “P” has been the main driver of the increase in the P/E ratio over this period.
It is interesting to note that analysts were projecting record-high EPS for the S&P 500 of $268.30 in CY 2025 and $304.88 in CY 2026 on October 29. If not, the forward 12-month P/E ratio would have been even higher than 23.1.
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