S&P500 PE

[JJac]

Is there an easy way to determine the PE Ratio for the S&P500?

 

[2B]

Try this. It's from the Standard & Poors web site


http://www2.standardandpoors.com/spf/xls/index/iee500_gics.xls

 

[JohnEyles]

Is there an easy way to determine the PE Ratio for the S&P500?

Sounds like somebody might have read that paper "Market-Timing Strategies That
Worked" that says the spread between the reciprocal of the S&P500's PE ratio, and
the 3-month T-Bill yield, provides a good buy/sell signal.

 

[Nords]

Sounds like somebody might have read that paper "Market-Timing Strategies That Worked" that says the spread between the reciprocal of the S&P500's PE ratio, and the 3-month T-Bill yield, provides a good buy/sell signal.

Darn it, now everyone will be doing it!

 

[TromboneAl]

The next question is: how do you decide on a reasonable S&P500 level? IOW if the market is under or over valued.

 

[samclem]

The next question is: how do you decide on a reasonable S&P500 level? IOW if the market is under or over valued.

PE10, Schiller, ***s, valuations

There, I said all the naughty words!

 

[dmpi]

As someone mentioned, one way to tell if the market is over or under priced is to compare it with the yield of a T-Bill. For example a P/E of 16.0 = 1/16.0 = 6.25% yield. Whats the yield on a 3 month t-bill.. About 5.25%

But here are also a few additional point to ponder.

1. Book value. S&P components have book value, such as property, equipment & cash.
Look at MSFT, just loaded with cash. Matter of fact the whole S&P 500 is quite loaded.

2. Current earnings may not not the same as future earnings. If you see things that can drive down earnings in the future for example, high energy cost, changes in taxes, housing bubble bust, etc. You need to account for that.

So IMHO. The S&P 500 looks under priced. Even after this good runup of the last few months I'm still bullish on US large caps stocks.

 

[2B]

I must be less suspicious than all of you. I just thought he wanted to know. I like to know once in a while.

BTW, the relationship you've all been talking about doesn't work real well.

I think it's interesting to see how PEs have fallen over the last few years as the market has taken off. In general, the market does better when the PE is highest. That's probably because at the bottom of the market cycles the PE is elevated because of the scrap value of some of the companies in the S&P 500.

 

[JJac]

I must be less suspicious than all of you. I just thought he wanted to know. I like to know once in a while.

Yes, actually I just wanted to know

 

[Ed_The_Gypsy]

 

[Delawaredave]

I like below S&P page - has US and global indices

http://www.globalindices.standardandpoors.com/sandp/Fundamental?index=BMI

 

[LOL!]

For those interested, there is a sidebar in this week's Standard & Poor's The Outlook about S&P P/E ratio. It's available at your library, online from your broker, or the S&P website.

It states S&P500 estimated 2007 P/E is 14.6, SmallCap600 P/E is 16.9, MidCap400 is 16.2

 

[Delawaredave]

For those interested, there is a sidebar in this week's Standard & Poor's The Outlook about S&P P/E ratio. It's available at your library, online from your broker, or the S&P website.

It states S&P500 estimated 2007 P/E is 14.6, SmallCap600 P/E is 16.9, MidCap400 is 16.2

Do you have a link handy ? I could not find by searching standardandpoors.com for "Outlook".

 

[LOL!]

www.outlook.standardandpoors.com -- I don't think registration is free. I access it from my broker's web site for free.

 

[d]

the relationship you've all been talking about doesn't work real well

i've found interest rates to provide a reasonable long term approximation to the e/p ratio. but it does not provide a good forecasting tool for the market because the forward earnings are unknown.

 

[dmpi]

P/E > 25 is one way to tell if stocks are getting over priced, and thus have a risk for a correction.
P/E, book value, my guess on future earning and future rates is all that determines my asset allocation.
Which.. by the way is : 85% stocks, 15% bonds + fixed income.

 

[justin]

When PE's are around the level they are now, it doesn't really tell you much. When they dip to 5 and earnings growth going forward will be flat or better, then it is a good time to buy. When PE's go up to 25, 30, 35, the market gets more risky - ie you are paying a decent sized speculative premium.

 

[MasterBlaster]

Oh why just use the S&P500 PE indicator when you can use 36 separate indicators...

Here's a link to 36 (or so) stock market indicators:

http://tal.marketgauge.com/dvmgpro/charts/dvpcharttoc.htm

1) click on one of the indicators

2) and then click on the graph

Each indicator tells you whether or not the stock market is priced properly. However as you'll see if you walk through them is that they don't all agree !!!

Now what's with that !!!

 

[dmpi]

When PE's are around the level they are now, it doesn't really tell you much. When they dip to 5 and earnings growth going forward will be flat or better, then it is a good time to buy. When PE's go up to 25, 30, 35, the market gets more risky - ie you are paying a decent sized speculative premium.

You may have to wait pretty long to wait for a PE of 5. I can't remember when the S&P 500 ever had a PE of 5.
But no doubt... that's a bullish sign.

 

[justin]

You may have to wait pretty long to wait for a PE of 5. I can't remember when the S&P 500 ever had a PE of 5.
But no doubt... that's a bullish sign.

True enough. The lower it goes (without a good reason), the better the SP500 looks.

 

[yakers]

Here's a link to 36 (or so) stock market indicators:

http://tal.marketgauge.com/dvmgpro/charts/dvpcharttoc.htm

Great page of graphs. I suppose there is always conflicting information and "you pays your money and make your choice". Or I, like most employeed people, just DCA for the length of the career and withdraw 4% a year in retirement and hope it all works out.

 

[2B]

When PE's are around the level they are now, it doesn't really tell you much. When they dip to 5 and earnings growth going forward will be flat or better, then it is a good time to buy. When PE's go up to 25, 30, 35, the market gets more risky - ie you are paying a decent sized speculative premium.

Unfortunately, the horrible truth is that big market up moves usually happen when PEs are high -- 20+. The PEs are usually high when the earnings fall and stocks crash. Earnings start to improve but the PEs are still high when the market responds with a killer rally.

Rallys when the PEs are high can keep on going because higher earnings keep feeding the fire. When earnings fall off the end comes. It is usually drawn out and painful. Eventually, the PEs fall to much lower levels.

 

[audreyh1]

Oh why just use the S&P500 PE indicator when you can use 36 separate indicators...

Here's a link to 36 (or so) stock market indicators:

http://tal.marketgauge.com/dvmgpro/charts/dvpcharttoc.htm

Hey, great resource! Thanks for the link!

Audrey

 

[perinova]

Great link!

Some of those indicators don't seem to offer any long term indication whatsoever.

Notice: The yield curve spread doesn't look good.

The S&P 500 Dividend Yield vs. Treasury-Bill Yield, neither.
But the 30 Yr. T-Bond Yield Minus Dividend Yield is OK does it mean the market is a good long term value but we will have a correction?