S&P 500 & Sector P/E Ratios

When S&P first created the GICS sector classifications in 2001 pricing was backdated to 1989 and fundamentals were provided starting in 1994.  Since then, on a diluted basis, the P/E ratios for eight of the ten sectors and the S&P 500 have made new lows on a trailing basis.  Utilities is the exception, while we are not analyzing the P/E for the financial sector since its earnings are negative.  

The chart below shows where the sectors and the market stand versus their historic high and low P/Es.  The line on the chart indicates the change in P/E over the last year.  As shown, health care and energy remain nearest to their lows, while the consumer discretionary sector has seen its P/E gain significantly resulting from losses by GM and Ford.

The P/Es shown here use the current index price and diluted EPS from continuing operations for the previous twelve months.  Since trailing earnings per share is a rolling calculation, and earnings for 2009 are expected to be 17.2% worse than 2008, the P/E is likely to increase even if the index trades sideways.  In other words, using the bottoms up EPS estimate of $56.25 for the S&P, stocks would have to decline below 575 to revisit the low P/E of 10.09.  In our view this scenario is unlikely.

Comments

[Mike Berry]

Please may I know where you are getting the figure of $56.25 for trailing 12 mos. EPS? The S&P site has 49.51 for the 12 mos. ending 12/31/08. With 95% of cos. reported, Q1 EPS is projected to be $10.09. Hence $42.98 for current TTM. That's a current P/E of 21. What am I missing? Thanks.

[medic]

Very interesting article and the blog is beautifully decorated, where you take the material for publication?

Thank you