Benzinga - by Piero Cingari, Benzinga Staff Writer.
The S&P 500 has recently scaled new historic heights, a significant milestone that resonates across the U.S. stock market, mirrored by the Nasdaq 100 and the Dow Jones Industrial Average.
The achievements made by these indices raise a pivotal question: Are we witnessing an overvaluation in the U.S. stock market, or do these levels still present a fair, investable landscape?
Latest data from FactSet offers a comprehensive answer to this question.
US Stock Market: Present Valuations
A similar pattern is evident in the Dow Jones and Nasdaq 100 indices.
The Dow, as tracked by the SPDR Dow Jones Industrial Average ETF (NYSE:DIA), is trading at 18.4 times its forecasted year-ahead earnings, a value that aligns with its 5-year average but is slightly higher than its 10-year benchmark of 17.1x.
Meanwhile, the Nasdaq 100’s valuations, as observed through the Invesco QQQ Trust (NASDAQ:QQQ), are at a P/E ratio of 25.9x. This level is consistent with the five-year average of 25.6x but exceeds the 10-year average of 22.9x.
Despite the slightly elevated figures above the average, the present valuations of the U.S. stock market do not significantly indicate an overvaluation concern.
The peak forward P/E ratios for the S&P 500 ETF Trust (NYSE:SPY) and the SPDR Dow Jones Industrial Average ETF over the past decade were reached in June 2020, with the S&P 500 hitting 25x and the Dow Jones touching 24x. In contrast, the Nasdaq 100’s valuations soared even higher, reaching 33.8 times anticipated earnings in September 2020.
| Current P/E Ratio | 19.5 | 18.4 | 25.9 |
| 5-Year Average P/E Ratio | 18.9 | 18.4 | 25.6 |
| 10-Year Average P/E Ratio | 17.6 | 17.1 | 22.9 |
| Peak P/E Ratio (Last Decade) | 25.0 | 24.0 | 33.8 |
| Peak P/E Ratio Date | June 2020 | June 2020 | September 2020 |
A sector-specific focus shows significant variation in forward P/E ratios within the S&P 500. The Information Technology and Consumer Discretionary sectors exhibit the highest forward 12-month P/E ratios, at 27.1 and 24.6, respectively. On the other end of the spectrum, the Energy and Financials sectors present the lowest ratios, at 11.0 and 14.4.
(Forward 12m) 5-year
average 10-year
average
| Info. Technology | 27.1 | 23.4 | 20.0 |
| Consumer Disc. | 24.6 | 27.5 | 23.1 |
| Industrials | 19.4 | 19.6 | 18.0 |
| Consumer Staples | 19.2 | 20.0 | 19.5 |
| Materials | 18.5 | 17.5 | 16.7 |
| Health Care | 18.2 | 16.3 | 16.1 |
| Comm. Services | 17.7 | 18.7 | 15.9 |
| Real Estate | 17.3 | 19.4 | – |
| Utilities | 15.2 | 18.6 | 17.6 |
| Financials | 14.4 | 13.2 | 13.1 |
| Energy | 11.0 | 2.5 | 15.6 |
Key Takeaways:
- The S&P 500, along with the Dow Jones and the Nasdaq 100, are all simultaneously trading at their all-time highs.
- Current market valuations are slightly above historical averages but do not indicate severe overvaluation.
- Sector-specific analysis shows significant variation in P/E ratios within the S&P 500.
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