S&P 500 PE Ratio – Current, Historical & Forward Price Earning Ratio

Current S&P 500 PE Ratio: 20.02
________

Forward PE Q2: 19.43
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Shiller PE: 29.72

The S&P 500 Price to Earning Ratio is a popular financial metric that helps an investor analyze the overall valuation of Standard & Poor’s 500 Companies. It tells you whether the US stock market is overvalued or undervalued and how much you pay for each dollar of earnings. PE ratio is based on comparing the stock’s closing price with its per-share earnings over time.

100+ Years History of S&P 500 PE Ratio

According to historical data, the S&P 500 average P/E ratio was 13.34 between 1900 and 1980, while the average ratio changed to 21.92 (1981–2021) over the next 40 years. The all-time highest S&P 500 PE was 123.73, measured in May 2009 (after the market crash), and the lowest pe was 5.31 found in December 1917.

PE Ratio By Month

What is PE Ratio?

PE Ratio is a financial metric that gives an idea about “what an investor is ready to pay to buy a share of a company based on the company’s earnings.”

For example, if the PE ratio is 20, the investor is ready to pay 20 times the company’s EPS (per-share earning) to buy a stock.

Reference: Oil company Chevron has a 5-year continued profit of $10, $20, $35, $50, and $80. Let’s assume that the company’s current stock price is $1200 because the most recent earnings are $80; for that reason, Chevron’s PE Ratio is $1200/$80 = 15. In other words, an investor who wants to invest in a Chevron company will get its money back over 15 years, according to the current earnings.

How to Calculate the S&P 500 PE Ratio?

To calculate the pe ratio, we required two elements: the current market price of the Index and S&P 500 Earning Per Share (EPS). then you can calculate the P/E ratio using this formula –

S&P 500 PE Ratio Formula

S&P 500 Forward PE Ratio

The forward P/E ratio represents the current price compared to the next period’s projected earnings per share. It’s just a way of saying the current stock price will rise or fall until it equals next year’s earnings divided by today’s stock price.

Forward P/E Ratio = Current Share Price / Estimated Future Earnings per Share.

DateForward PE Ratio
Q1-202222.51
Q2-202219.43
Q3-202218.87
Q4-202218.58
Q1-202317.89
Q2-202317.52
Q3-202317.27
Q4-202316.95
Source: Ycharts

Some investors believe forward P/E ratios are more marketing gimmick than meaningful, but they still provide another way to analyze a stock. They find it easier to locate promising stocks by examining their fundamentals rather than their future earnings.

Google PEApple PE
Amazon PEMicrosoft PE
Tesla PEFacebook PE

How to Analyze PE Ratio?

As long-term investors, we always look for fundamental data and growth possibilities. The P/E Ratio helps us to understand the overall valuation of the S&P 500 Index.

By comparing S&P 500 PE ratio with historical data, we can analyze how the US Market is priced compared to history. It also helps us identify the right time to buy stocks to make good returns.

Levels of P/E Ratio –

The S&P 500 Average PE Ratio is 14-17, which means if the current P/E ratio is near the historical average, then it may be a good time to invest because the market is reasonably priced based on history. On the other hand, if the P/E ratio is higher than the average, it indicates the market may be overpriced or expensive and prices may fall.

But that’s not the exact point where you can trade based on PE. It depends on market sentiment, your analysis, and fundamental considerations. For example, in the same chart, you can see market prices are reaching their high during the market down phase, and if you are short on that level only based on an expensive market (high price-earnings ratio) you would have lost money.

Also check: Invest In S&P 500 and Beat 90% of Funds

PE Ratio vs Interest Rate vs Price vs Earnings

In the process of wealth creation, no Investment decision can be taken based on just the PE ratio. You have to compare many different metrics and understand the relationship between them. In the below chart, you can easily compare and observe the S&P PE ratio with an all-important indicator –


If you want to understand “How Interest Rate Works” then check this Post – 10 Year Treasury Yield.

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Is S&P 500 In Bear Market?

You must deeply evaluate historical & key levels of pe ratio to understand the market valuations. One Standard Deviation is really helpful in that research, You can see from the below image where the S&P 500 PE Ratio has spent the majority of its time during the past 100 years.

Standard Deviation of PE Ratio

The current PE ratio for the S&P 500 is now close to 20, which is almost the historical average PE. Also, the standard deviation, indicates that 70% of the historical market has a range of PE levels between 12 and 20. This indicates that the Current Market is Fairly Valued.

But for better understanding and minimizing the impact of short-term earnings volatility, you can also check the Shiller PE ratio, which uses inflation-adjusted 10-year earnings data to make long-term comparisons possible.

See Also:

Summary –

The S&P 500 P/E Ratio is a useful valuation tool, but in order to examine the full picture, we also need to analyze additional fundamental data, technical analysis, and market sentiment.


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