S&P 500 PE Ratio (Historical Chart)

The S&P 500 Price to Earning Ratio is a popular financial metric that helps an investor to analyze the overall valuation of Standard & Poor’s 500 Companies. That's a price-to-earnings multiplier of the S&P 500 components and represents the overall US market price compared to earnings.

Current S&P 500 PE Ratio29.5022 Nov 2021

40 Years Historical PE Ratio By Month

According to historical data, the S&P 500 average P/E ratio was 13.34 between 1900 and 1980, while the average ratio has changed to 21.92 (1981–2020) over the next 40 years. The highest ever ratio is 123.73 which was measured in May 2009 (after the market crash) and the lowest was 5.31 found in December 1917.

What is PE Ratio?

PE Ratio is a financial metric that gives an idea about "what an investor is a ready pay to buy a share of a company based on earnings of the company'

For example, if the PE ratio is 20, which means the investor is ready to pay 20 times of 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 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 math.

Understand - What is VIX Index?

How to Calculate the S&P 500 PE Ratio (Formula)

To calculate the ratio, you need two types of elements, the current market price of the Index, and S&P 500 EPS (Earning Per Share). After that, you can calculate the P/E ratio using this formula –

S&P 500 PE Ratio Formula

Forward PE Ratio?

The forward P/E ratio represents the current price compared to the next period's projected earnings per share. This is 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

S&P 500 Forward PE Ratio

On the other hand, some investors firmly believe that forward P/E ratios are little more than marketing gimmicks and just provide another set of figures to analyze; they claim that it is much easier to find good stocks using fundamental analysis rather than looking into the future earnings for a company.

How to Analyze PE Ratio?

As long-term investors, we always look for companies' fundamentals 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 understand how the US Market is priced compared to history. It also helps us to identify the right time to buy stocks to make good returns.

The S&P 500 Average PE Ratio is 16.8 that 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 fairly priced based on history. But on the other hand, if the P/E ratio is higher than the average, it indicates the market may be overpriced and prices may fall at some level.

1 Pic: Explain the level and impact of P/E ratio

S&P 500 PE Ratio

2 Pic: Comparison of two companies with PE ratio -

Example of Good PE Ratio

In simple words, the overvaluation of the price on the basis of earnings indicates a higher P/E Ratio whereas, in contrast, undervaluation indicates the lower or average ratio.

Also check:

  1. S&P 500 YTD Returns
  2. S&P 500 Sector & Stock Weightage
  3. How to Invest In S&P 500
PE Ratio vs Price vs Earnings vs Interest Rate

In the process of wealth creation, no Investment decision can be taken on the basis of just 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 Yiled...

Summary -

The S&P 500 P/E Ratio is a good metric but we also need to understand the other fundamental data and technical analysis to see the clear picture and the above chart helps you to get this.

Abhishek Vyas

Abhishek has experience of 4 years in Finance Content writing. He writes on investing in Stock Market and Cryptocurrencies.

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