S&P 500 Forward P/E Ratio Falls Below 10-Year Average for the First Time Since Q2 2020

On May 12, the closing price for the S&P 500 was 3930.08 and the forward 12-month EPS estimate for the index was $237.18. Based on this closing price and EPS estimate, the forward 12-month P/E ratio for the S&P 500 on that date was 16.6. How does this 16.6 P/E ratio compare to historical averages? How much has it changed in recent months?

Forward P/E Still Exceeds Long-Term Averages

The forward 12-month P/E ratio of 16.6 on May 12 was below the five-year average of 18.6 and below the 10-year average of 16.9. However, it was still above the next three most recent historical averages: 15-year (15.5), 20-year (15.5), and 25-year (16.5).

In fact, prior to the past four days, this marked the first time the forward 12-month P/E ratio was below the 10-year average of 16.9 since April 7, 2020 (16.8). However, the forward 12-month P/E ratio of 16.6 on this date was still well above the lowest P/E ratio of the past nine years of 13.1 recorded on March 23, 2020.

At the sector level, five sectors had forward 12-month P/E ratios on May 12 that were below their 10-year averages, led by the Energy (9.9 vs. 15.8) and Materials (13.6 vs. 16.2) sectors. On the other hand, five sectors had forward 12-month P/E ratios that were above their 10-year averages on that date, led by the Utilities (19.9 vs. 17.1) and Consumer Staples (21.2 vs. 18.9) sectors. One sector (Health Care) had a forward 12-month P/E ratio equal to its 10-year average (15.6).

The Decline in the S&P 500

On January 3, 2022, the S&P 500 closed at a record-high value of 4796.56. The forward 12-month P/E ratio on that date was 21.4. From January 3 through May 12, the price of the S&P 500 decreased by 17.5%, while the forward 12-month EPS estimate increased by 6.1%. Thus, the decrease in the “P” has been the main driver of the decrease in the forward P/E ratio since January 3.

It is important to note that analysts were still projecting record-high EPS for the S&P 500 of $229.22 for CY 2022 and $251.22 for CY 2023 on May 12. If not, the forward 12-month P/E ratio would likely have been higher than 16.6.

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