In the Sunday Business section of the New York Times this weekend, Paul Lim wrote an article titled "The Bull Market That's Missing Something." Mr. Lim highlighted that the p/e ratio of the S&P 500 has actually declined during this bull market, differentiating it from the average bull market that normally sees a p/e expansion from 13.5 to 17.3.
We took the analysis one step further and looked at the change in p/e ratios of the ten major sectors during this bull market. As shown by the table above, six of the ten sectors have had contractions in their trailing twelve-month p/e ratios since 10/9/02 (includes sectors with no p/e as of 10/9/02). The Energy sector has had the biggest contraction in its p/e ratio of sectors that had positive earnings at the start. Technology and Telecom had negative p/e ratios at the start, and their current p/e ratios are now 25.50 and 22.92 respectively.
The four sectors that have seen their p/e ratios expand are Financials, Health Care, Consumer Staples and Utilities. Utilities have had the largest expansion (10.38 up to 20.38), while the expansions of the other three have been minimal.
Interestingly, the sector with the biggest p/e contraction, Energy, is also the sector that has registered the largest gains.