For Those Equity Investors Concerned About Valuation Levels
Supporting Image for Blog Post

View from the Observation Deck  

  1. In the table above, the line shaded in yellow shows the S&P 500 Index's average price-to-earnings (P/E) ratio and average annual total return from 1960 through 2018. It offers a long-term perspective on the stock market.
  2. One of our key takeaways from the table is the 9.79% average annual total return from 1960 through 2018, because it is essentially in line with the index's average annual total return of 9.99% from 1926-2018 (not shown in table), according to Ibbotson & Associates/Morningstar. 
  3. While the average P/E on the S&P 500 Index from 2010 through 2018 was 17.70, the trailing 12-month P/E stood at 16.64 as of 12/31/18 (not shown in table), below the 16.93 average P/E since 1960, according to Bloomberg.  
  4. As of 2/11/19, Bloomberg's consensus estimated P/E ratios for year-end 2019 and 2020 were 16.15 and 14.55, respectively.
  5. The S&P 500 Index is currently at its cheapest levels relative to forward-looking earnings since 2013, according to Money

This chart is for illustrative purposes only and not indicative of any actual investment. There can be no assurance that any of the projections cited will occur. 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 (currently 505) used to measure large-cap U.S. stock market performance.

Download a PDF of this post, please click here.
Posted on Tuesday, February 12, 2019 @ 2:34 PM

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.