On March 12, the closing price for the S&P 500 was 2480.64. Based on this closing price, the forward 12-month P/E ratio for the S&P 500 on that date was 14.0. How does this 14.0 P/E ratio compare to historical averages? How much has it changed in recent weeks?
The forward 12-month P/E ratio of 14.0 on March 12 was below the four most recent historical averages for the S&P 500: five-year (16.7), 10-year (15.0), 15-year (14.6), and the 20-year (15.5).
In fact, this marked the first time the forward 12-month P/E was below the 10-year average of 15.0 since January 8, 2019 (14.9). It also marked the lowest forward 12-month P/E ratio for the index since December 24, 2018 (13.5). However, it is important to note that at 14.0, the forward 12-month P/E ratio was still well above the lowest P/E ratio of the past 10 years of 10.0 recorded on October 3, 2011.
At the sector level, seven sectors had forward 12-month P/E ratios on March 12 that were below their 10-year averages, led by the Energy (10.6 vs. 20.5), Financials (8.7 vs. 12.2), and Industrials (12.8 vs. 15.3) sectors. Three sectors had forward 12-month P/E ratios that were above their 10-year averages on that date, led by the Information Technology (17.0 vs. 15.3) sector. A 10-year average P/E ratio is not available for the Real Estate sector.
On February 19, 2020, the S&P 500 closed at a record-high value of 3386.15. The forward 12-month P/E ratio on that date was 19.0. Since February 19, the price of the S&P 500 has decreased by 26.7%, while the forward 12-month EPS estimate has decreased by 0.7%. Thus, the decrease in the “P” has been the main driver of the decrease in the P/E ratio since February 19.
It is important to note that analysts were still projecting record-high EPS for the S&P 500 of $173.43 in CY 2020 and $193.92 on March 12. If not, the forward 12-month P/E ratio would have been higher than 14.0.