On February 8, the forward 12-month P/E ratio for the S&P 500 was 20.3, which marked the seventh time in the past nine trading days in which the P/E ratio for the index was above 20.0. How does this 20.3 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 20.3 on February 8 was above the five most recent historical averages for the S&P 500: 5-year (18.9), 10-year (17.7), 15-year (16.1), 20-year (15.6), and 25-year (16.4). In fact, prior to January 29, the last time the forward 12-month P/E ratio had been above 20.0 was February 9, 2022 (20.2). However, it is important to note that even at 20.3, the forward 12-month P/E ratio was still below the peak P/E ratio of the past 25 years for the index of 24.4 recorded on July 16, 1999.
At the sector level, eight sectors had forward 12-month P/E ratios on February 8 that exceeded their 25-year averages, led by the Information Technology (28.6 vs. 21.1), Materials (19.3 vs. 14.7), and Consumer Discretionary (24.8 vs. 19.9) sectors. The only two sectors with forward 12-month P/E ratios on February 8 that were below their 25-year averages were the Energy (11.7 vs. 14.5) and Utilities (14.9 vs. 15.1) sectors. A 25-year average P/E ratio is not available for the Real Estate sector.
What is driving the rise in the forward 12-month P/E ratio? On October 27, the forward 12-month P/E ratio was 17.0, as the price of the index hit its lowest value since May 24 at 4117.37. Since October 27, the price of the S&P 500 has increased by 21.4%, while the forward 12-month EPS estimate has increased by 2.0%. Thus, the increase in the “P” has been the main driver of the increase in the P/E ratio over the past few months.
It is interesting to note that analysts were projecting record-high EPS for the S&P 500 of $243.41 in CY 2024 and $275.34 in CY 2025 on February 8. If not, the forward 12-month P/E ratio would have been higher than 20.3.
This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or 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.