S&P 500 Index forward valuation has slipped below the 20-times earnings mark for the first time in an extended period, reflecting easing equity valuations, according to market data highlighted by strategist Mike Zaccardi on Friday.
S&P 500 Index is now trading at a forward price-to-earnings ratio below 20x, based on data from The Daily Shot. Zaccardi said the move raises the possibility that valuation compression could become a broader market theme during the second half of the year.
S&P 500 Index nevertheless remains valued above its long-term average forward multiple of roughly 15x. Historical comparisons also show the current valuation is still well below levels reached during the late-1990s technology boom.
A lower forward P/E indicates investors are paying less for each dollar of expected earnings over the coming 12 months. S&P 500 Index could see further multiple contraction if stock prices continue to soften or earnings expectations improve faster than share prices, even as corporate profit growth remains intact. Analysts generally monitor the forward P/E ratio as a measure of market valuation, with shifts in the multiple often reflecting changes in investor sentiment, interest-rate expectations and growth outlook rather than earnings performance alone.