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.
Mr. John Butters is Vice President and Senior Earnings Analyst at FactSet. His weekly research report, “Earnings Insight,” provides analysis and commentary on trends in corporate earnings data for the S&P 500 including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, The Financial Times, The New York Times, MarketWatch, and Yahoo! Finance. Mr. Butters has over 15 years of experience in the financial services industry. Prior to FactSet in January 2011, he worked for more than 10 years at Thomson Reuters (Thomson Financial), most recently as Director of U.S. Earnings Research (2007-2010).
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