Home Logon FTA Investment Managers Blog Subscribe About Us Contact Us

Search by Ticker, Keyword or CUSIP       
 
 
 
Blog Home
Bob Carey
Chief Market Strategist
Bio
X •  LinkedIn
 

  A Perspective on the S&P 500 Index’s P/E Ratio
Posted Under: Broader Stock Market
Supporting Image for Blog Post

 
View from the Observation Deck 

  1. The current bull market in stocks, which commenced in March 2009, has lasted more than eight years and nine months. It is the second-longest bull market ever, according to Bespoke Investment Group.
  2. Considering the duration of this bull market, it seems only natural that investors might question how much longer it can run and/or whether or not valuation levels have become too rich at current levels. 
  3. Brian Wesbury, Chief Economist at First Trust Advisors L.P., just released (12/18/17) his forecast calling for the S&P 500 Index to reach 3,100 by the end of 2018, up 15.70% from the index's close of 2,679.25 on 12/20/17. Wesbury's projection represents a near-term perspective on the stock market. 
  4. In the table above, the line highlighted in yellow shows the S&P 500 Index's average price-to-earnings (P/E) ratio and average annual total return since the start of 1960. It represents a long-term perspective on the stock market.
  5. One of the key takeaways is the 10.06% average gain. It is consistent with the index's average annual total return of 10.04% from 1926-2016, according to Ibbotson & Associates/Morningstar. 
  6. We have noted on many occasions that we believe corporate earnings determine the direction of stock prices over time. As of today, Bloomberg's consensus estimated earnings growth rates on the S&P 500 Index for 2018 and 2019 are 10.25% and 10.29%, respectively. 
  7. As of today, the trailing 12-month P/E ratio on the S&P 500 Index is 22.58, well above the 16.87 average P/E since the start of 1960.  The estimated P/E ratios for year-end 2018 and 2019, however, are 18.22 and 16.52, respectively, according to Bloomberg. The 16.52 projected P/E for 2019 is in line with the 16.87 average P/E since 1960. 
 
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance.


Download a PDF of this post, please click here.
                                                                                                                                      
The next blog post will resume Thursday, January 4, 2018.
Posted on Thursday, December 21, 2017 @ 2:50 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
Search Posts
MARKET ANALYSIS
Market Commentary and Analysis
Market Commentary Video
Monthly Talking Points
Quarterly Newsletter
Market Observations
Subscribe To Receive Email
 


 PREVIOUS POSTS
A Snapshot of Growth vs. Value Investing
S&P 500 Index Top-Line Growth Estimates
2018: A Strategic Outlook
Top-Performing Subsectors in the S&P 500 Index in 2017
This Homebuilder Index Is Still Well Below Its All-Time High
S&P 500 Index Stock Prices Relative To Their 52-Week Highs
Sector Performance Via Market Capitalization Since Trump Won The Presidential Election
24K
This Covered Call Index Tends To Beat The Broader Market In Low Return And Negative Return Climates
Information Technology + Consumer Discretionary = Internet Retail
Archive
Skip Navigation Links.
Expand 20242024
Expand 20232023
Expand 20222022
Expand 20212021
Expand 20202020
Expand 20192019
Expand 20182018
Expand 20172017
Expand 20162016
Expand 20152015
Expand 20142014
Expand 20132013
Expand 20122012
Expand 20112011

Search by Topic
Skip Navigation Links.

 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Follow First Trust:  
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2024 All rights reserved.