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

Earnings

By John Butters  |  February 25, 2022

On February 23, the closing price for the S&P 500 was 4225.50 and the forward 12-month EPS estimate for the index was $228.85. Based on this closing price and EPS estimate, the forward 12-month P/E ratio for the S&P 500 on that date was 18.5. How does this 18.5 P/E ratio compare to historical averages? How much has it changed in recent weeks?

Forward P/E Ratio Below the Five-Year Average, But Above Other Historical Averages

The forward 12-month P/E ratio of 18.5 on February 23 was below the five-year average of 18.6. However, it was still above the next four most recent historical averages: 10-year (16.7), 15-year (15.5), 20-year (15.5), and 25-year (16.5).

sp-500-forward-12-month-pe-ratio-five-years

In fact, this marked the first time the forward 12-month P/E ratio was below the five-year average of 18.6 since April 15, 2020 (18.4). However, the forward 12-month P/E ratio of 18.5 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 February 23 that were below their five-year averages, led by the Materials (15.1 vs. 17.7) sector. On the other hand, six sectors had forward 12-month P/E ratios that were above their five-year averages on that date, led by the Energy (12.2 vs. 7.1) sector.

sp-500-sector-level-forward-12-month-pe-ratios

S&P 500 Price Declines Pull Down the Forward P/E Ratio

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 February 23, the price of the S&P 500 decreased by 11.9%, while the forward 12-month EPS estimate increased by 2.3%. Thus, the decrease in the “P” has been the main driver of the decrease in the P/E ratio since January 3.

sp-500-change-forward-12m-eps-vs-price-five-years

It is important to note that analysts were still projecting record-high EPS for the S&P 500 of $225.51 for CY 2022 and $248.10 for CY 2023 on February 23. If not, the forward 12-month P/E ratio would have been higher than 18.5.

In addition, it should be noted that with the increase in price of the S&P 500 on February 24, the forward 12-month P/E ratio is now 18.8 and back above the five-year average.

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The information contained in this article is not 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.

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John Butters

Vice President, Senior Earnings Analyst

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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The information contained in this article is not 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.