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Kirk Windsurfing at Palo Alto in SF Bay in May 2009
 S&P500 PE Ratio & CAPE History
Historical S&P500 Price to Earnings Ratio with Charts 		Kirk Windsurfing at Coyote Point November 2009
Historical Price to Earnings Ratio of Standard and Poor's 500 Index

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March 19, 2014:  Currently, the PE ratio for the S&P500 using GAAP earnings of $100.23 for the past 12 months is 18.42 according to the March 13, 2014 update at McGraw Hill.  Using "operating earnings" of $107.29 for the past 12 months, the PE Ratio for the S&P500 is 17.21.   Data Summary:
  • Date 3/13/14
  • S&P500:  1846
  • Trailing 12-month GAAP earnings = $100.23
  • PE Ratio = 18.42 using as reported GAAP (Generally Accepted Accounting Principles) earnings
  • Trailing 12-month Operating earnings= $107.29
  • PE Ratio = 17.21 using as operating earnings
Over the past 114 years, the rage for the price to earnings ratio (PE ratio) of the S&P500 is 5 to 150. Click to see Today's PE vs Time Chart from Chart of the Day.

PE ratios usually fall when investors slowly lose interest in stocks. The exceptions are bear market crashes when companies lose money and write off everything but the kitchen sink to often show negative earnings. 
Table and excerpt from my March 2014 Newsletter:

The estimates for 2015 earnings are in and they show good growth over 2014. See page 10 for a summary.  Now, based on 2014 PE or PEG, the market does not look over valued.   The 32% gain last year may have correctly anticipated the higher earnings, especially with estimates for 2015 showing similar earnings growth. .....

Data updated 3/20/12 courtesy of Robert Shiller, Yale Department of Economics. In Schiller's modified P/E, the denominator is not current earnings per share but average inflation-adjusted earnings over the trailing 10 years. This modified ratio, sometimes called P/E10, or CAPE (Cyclically Adjusted Price Earnings) ratio, is said to have better forecasting record than the simple P/E ratio.  I like tracking this as it gives a different opinion than the more bullish Fed Model.

 

=> Remember that S&P predicted $100 for 2009 GAAP (Generally Accepted Accounting Principles) earnings before the 2007 to 2009 bear market so these estimates are better for looking at current valuations than predicting the future. In 2000, the analysis clearly showed the market was overvalued, thus it had some value as an indicator.     

P/E10, or CAPE (Cyclically Adjusted Price Earnings) Ratio
=> I have an updated version of this Shiller P/E10 chart on page 7 of my April 2014 Newsletter <=
Historical Shiller CAPE (Cyclically Adjusted Price Earnings) Ratio Earnings) ratio

In 1984, shortly after CAPE bottomed around 7, I bought my first home using a 14.0% variable rate loan.  Fixed loans were ~17% at that time.  In 2012, I refinanced my home mortgage with a fixed 3.375% 15-year loan offset with money in TIPS and I Bonds with base rates as high as 3.0%. See: Current I Bond Rates & Historical I Bond Rates 

The S&P500 came very close to having zero earnings at the peak of the financial crisis.   When you divide stock price by nearly zero earnings, you get a very, very high PE.

From Chartoftheday.com1
Today's chart illustrates the price to earnings ratio (PE ratio) from 1900 to present. Generally speaking, when the PE ratio is high, stocks are considered to be expensive. When the PE ratio is low, stocks are considered to be inexpensive. From 1900 into the mid-1990s, the PE ratio tended to peak in the low to mid-20s (red line) and trough somewhere around seven (green line). The price investors were willing to pay for a dollar of earnings increased during the dot-com boom (late 1990s), surged even higher during the dot-com bust (early 2000s), and spiked to extraordinary levels during the financial crisis (late 2000s). Since the early 2000s, the PE ratio has been trending lower with the very significant but relatively brief exception that was the financial crisis. More recently, the PE ratio has trended higher (to just shy of the 20 level). However, over the past four months, corporate earnings have increased enough to maintain a relatively flat PE ratio -- an overall positive for the stock market.
S&P500 Inflation Adjusted Earnings

Note 1.  Source: Chart of the Day  "Journalists and bloggers may post the above free Chart of the Day on their website as long as the chart is unedited and full credit is given with a live link to Chart of the Day at http://www.chartoftheday.com."
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