Looking at a stock or sector's historical P/E ratio is much better than looking at its current P/E ratio to determine valuations. Below we highlight the one-year trailing 12-month P/E ratios of the S&P 500 and its ten sectors. With fourth quarter earnings season about halfway done, some key moves have taken place in P/E ratios recently.
The P/E ratio of the S&P 500 is currently at 18.2. This is lower than it was at the market's peak, but much higher than it was back in August, even though the market is at about the same price level. This indicates overall earnings have declined.
On a sector basis, it's easy to see who's the culprit. As shown below, the P/E ratios of the Financial and Consumer Discretionary sectors have spiked significantly, while the rest of the sectors have seen their P/Es decline. Based on P/E ratios, Health Care, Industrials, Technology, Consumer Staples and Telecom look especially attractive now versus any time in the last year.
These charts are part of our weekly Sector Snapshot available to Bespoke Premium subscribers.
Excellent analysis. Thanks! It will be intresting to look at this next quarter after earnings.
Posted by: Tim | January 25, 2008 at 12:38 PM