p/e ratio of SP 500

[MichealKnight]

It's currently at 34.

Even if Ukraine and Putin end up as lovers, replete with champagne, strawberries and a couple's suite at the Kiev Ritz...... even if the "10 year treasury" stays around 2-2.5%..... even if earnings keep growing, is it relevant that historic PE mwas around 19...and now we're at 34?

Point being - is 30's the new normal as long as earnings are growing? OR does it mean that no matter how much good stuff happens -- there's an inevitable crash coming?

Yes, we can say "I don't care,im in it for the long term", ok, great. Perhaps that's all we can react with. But - regardless of one's AA - -it's a relevant question. Will investors accept 34 as the new normal, or - is there some nastiness, real nastiness coming? Part of me feels very worried ....34 to 20 is a huge gap and potential drop. BUT ....then again. people are sending in their 401K without question each pay period. What else are people gonna do other than keep buying the same stocks and supporting these high PE ratios?

Thoughts?

 

[MichealKnight]

One caveat and IO apologize: Some places are saying 34 PE current. Others 24. Not sure what is correct.

 

[USGrant1962]

Current trailing PE is ~24, forward PE is ~19. Best source I've found for current is WSJ:

https://www.wsj.com/market-data/stocks/peyields

A lot of sources show PE at the end of last year, or end of last quarter. Shiller PE10 is around 35, but I've never been convinced that earnings from 7, 8, 9, and 10 years ago are particularly relevant data.

 

[Fermion]

I wouldn't sweat it too much, before much longer, the E will go up as companies raise prices in the face of limited supply and endless demand.

$50 OSB didn't stop many from building, I doubt $4 gas will stop many from driving.

 

[target2019]

I use this site for PE's.
https://www.multpl.com/s-p-500-pe-ratio

Explanations are also included.

 

[Dtail]

IIRC, the Schiller P/E has last been under 20 around March 2009, which turned to be a good start of the bull market.
Since then with an overall continuing bull market........
It might have some relevance, but not a big fan of the Cape 10 as a predictor.

 

[Montecfo]

S&P PE is 24. Forward PE under 20. PE has dropped sharply over the past year.

34 is the CAPE10.

CAPE 10 is not a good market timing signal.

To answer your question, PEs only make sense in the context of interest rates at the time. Ours are low and, though they will rise, I expect them to stay low due to the country's demographics. Earnings rising rapidly.

 

[njhowie]

I use this site for PE's.
https://www.multpl.com/s-p-500-pe-ratio

Explanations are also included.

What is the definition of "as reported" earnings?

Herein lies the problem with the whole enchilada.

 

[njhowie]

One caveat and IO apologize: Some places are saying 34 PE current. Others 24. Not sure what is correct.

GAAP or non-GAAP (adjusted) earnings?

 

[pb4uski]

GAAP earnings I hope, because non-GAAP earnings can be whatever you want them to be and are not audited.

 

[target2019]

What is the definition of "as reported" earnings?

Herein lies the problem with the whole enchilada.

A good question for the site developer!

 

[Closet_Gamer]

IIRC, the Schiller P/E has last been under 20 around March 2009, which turned to be a good start of the bull market.
Since then with an overall continuing bull market........
It might have some relevance, but not a big fan of the Cape 10 as a predictor.

I think a lot of this is pinned to interest rates.

We get a bond bear market, or even a slow/steady much of rates back towards the mean, and a lot of gearing will come out of companies. PE should contract in the face of that.

 

[corn18]

P/E is a ratio:

P:

1. Stock buybacks now are higher than ever. That drives P up.
2. Dividends are much lower now than in the past. This keeps P up because if you don't pay a dividend, your price doesn't drop equivalent to the dividend.

E: don't see much change here in historical earnings.

So, the impact of share buybacks and lower dividends drives P up with no change in earnings. As a result, P/E is going up without any fundamental change in the underlying companies.

JMHO to explain part of why historical P/E of 15 is no longer relevant.

 

[Major Tom]

$50 OSB didn't stop many from building, I doubt $4 gas will stop many from driving.

$4 gas? Must be nice not living in California

 

[Koolau]

$4 gas? Must be nice not living in California

Heh, heh, yeah, I was gonna ask where I can find gas for $4. Our is going up cents per day and is already past $4.50 but YMMV.

 

[oldtimer]

P/E is a ratio:

P:

1. Stock buybacks now are higher than ever. That drives P up.
2. Dividends are much lower now than in the past. This keeps P up because if you don't pay a dividend, your price doesn't drop equivalent to the dividend.

E: don't see much change here in historical earnings.

So, the impact of share buybacks and lower dividends drives P up with no change in earnings. As a result, P/E is going up without any fundamental change in the underlying companies.

JMHO to explain part of why historical P/E of 15 is no longer relevant.

+1

 

[Phroig]

+1

If E is per share, then buybacks decrease shares outstanding and boost E as well. Companies like IBM have used this technique.

 

[njhowie]

If E is per share, then buybacks decrease shares outstanding and boost E as well. Companies like IBM have used this technique.

And it's backfired on IBM tremendously. Likewise for Exxon and Macy's.

And then there's Aeropostale - do you remember that name? They used $1B of cash they had in the bank to repurchase their shares, at an average price around $20/share. Bet they wished they had all that cash back just a couple years later when the shares were under $1 and they finally succumbed to bankruptcy.

 

[aja8888]

$4 gas? Must be nice not living in California

Check Gas Buddy for Houston, TX. Chevron is $2.85.

 

[corn18]

If E is per share, then buybacks decrease shares outstanding and boost E as well. Companies like IBM have used this technique.

E is not per share, it's total earnings for P/E ratio. A lot of C suite folks are compensated based on Earning Per Share (EPS) so that is why they like share buybacks.

 

[njhowie]

E is not per share, it's total earnings for P/E ratio. A lot of C suite folks are compensated based on Earning Per Share (EPS) so that is why they like share buybacks.

Generally, the definition for E is per share, and P is per share - the stock price.

However, if you want to use E as total earnings, then your P is total market cap.

Doesn't really matter, either divide them both by share count or not, P/E is the same.

https://www.investopedia.com/terms/p/price-earningsratio.asp

The price-to-earnings (P/E) ratio relates a company's share price to its earnings per share.

 

[corn18]

Generally, the definition for E is per share, and P is per share - the stock price.

However, if you want to use E as total earnings, then your P is total market cap.

Doesn't really matter, either divide them both by share count or not, P/E is the same.

https://www.investopedia.com/terms/p/price-earningsratio.asp

You're right! So stock buybacks do not impact P/E. I would go back and edit my post but it seems I am too late.