P/E Ratio
Selected range · January 1871 — March 2026
About this chart
The S&P 500 P/E Ratio compares the level of the U.S. stock market with the earnings generated by the companies represented in the underlying market series.
P/E stands for price-to-earnings. It shows how much investors are paying for each unit of reported earnings.
The price component is the monthly S&P 500 index level. The earnings component represents annualized earnings per share associated with the broad U.S. stock-market series.
The ratio rises when stock prices increase faster than earnings. It can also rise when earnings decline while the index level remains stable or falls more slowly.
A higher P/E Ratio means that investors are paying more for each unit of current earnings. This may reflect stronger expectations for future earnings growth, lower interest rates, greater investor confidence, or historically elevated market valuations.
The ratio falls when earnings grow faster than stock prices or when the market declines relative to earnings.
A lower P/E Ratio means that investors are paying less for each unit of current earnings. Lower readings may occur after market declines, during periods of weaker investor sentiment, or when corporate earnings have increased faster than market prices.
Unlike the CAPE Ratio, which uses the average of ten years of inflation-adjusted earnings, the standard P/E Ratio compares the market level with the current earnings measure. It therefore responds more quickly to changes in corporate profitability.
This greater responsiveness can also make the standard P/E Ratio more volatile. During recessions or temporary economic disruptions, earnings can fall sharply and cause the ratio to rise even when stock prices are declining.
The chart compares the S&P 500 P/E Ratio with its arithmetic historical average.
A reading above the historical average means that the market is priced more highly relative to current earnings than it has been across the full historical sample.
A reading below the historical average means that the market is priced less highly relative to current earnings.
The deviation line expresses how far the current P/E Ratio is above or below its historical average as a percentage.
A deviation of 0% means that the P/E Ratio is equal to its historical average.
A positive deviation means that the ratio is above its historical average. A negative deviation means that it is below its historical average.
The standard-deviation levels show whether the current P/E Ratio is relatively close to or far from its historical average. Values farther from the average represent less common historical valuation conditions.
The P/E Ratio can provide useful context about current equity-market valuation. However, it should not be treated as a precise estimate of fair value or as a reliable short-term market-timing indicator.
Limitations
- The ratio uses reported or estimated earnings, which can be volatile, cyclical, revised, and affected by temporary gains, losses, or accounting changes.
- Earnings can fall sharply during recessions, causing the P/E ratio to rise even when stock prices are declining, so a high reading does not always reflect expanding valuations.
- The S&P 500 index level excludes reinvested dividends, and the model does not measure investors’ total returns.
- Historical P/E comparisons can be affected by changes in accounting standards, taxation, profit margins, sector composition, and the growing importance of intangible assets.
- The historical average and standard-deviation zones depend on the selected sample period and may be materially influenced by extreme earnings and market episodes.
- A conventional P/E ratio uses current or recent earnings and may therefore provide a less stable valuation measure than approaches that smooth earnings across a longer period.
- An unusually high or low P/E ratio can persist and should not be interpreted as a precise fair-value estimate or a market-timing signal.
Methodology
The S&P 500 P/E Ratio is calculated by dividing the monthly S&P 500 index level by the corresponding annualized earnings value.
The earnings input represents annualized earnings per share associated with the long-run U.S. stock-market series. Monthly earnings observations may be interpolated between available reported periods. The model calculates the arithmetic historical average of the complete monthly P/E Ratio series. The ratio chart’s reference levels are constructed by adding and subtracting one, two, and three standard deviations of the historical P/E Ratio from its historical average. These produce the ±1σ, ±2σ and ±3σ valuation levels. The percentage deviation measures how far each P/E Ratio observation is above or below the historical average. The standard deviation of the historical percentage-deviation series is calculated separately. The z-score divides the current percentage deviation by this value, expressing the current deviation in standardized units. The model uses monthly observations beginning in January 1871 and continues through March 2026 in the current workbook. Monthly earnings since 1926 are derived from S&P four-quarter totals and interpolated between reported periods. Earlier earnings observations are based on Cowles historical data and interpolated from annual figures. Inflation adjustment is not required for the standard P/E Ratio because the index level and earnings are compared in nominal terms for the corresponding period. Applying the same inflation conversion to both components would not change their ratio.
Data sources
Monthly U.S. stock-market index level used as the price component of the P/E Ratio
Range: January 1871 to the latest available observation used by the model
Source: DataHub, Standard and Poor’s 500 Index Data; https://datahub.io/core/s-and-p-500
Monthly annualized S&P market earnings used as the earnings component of the P/E Ratio
Range: January 1871 to the latest available observation used by the model
Source: Robert J. Shiller, U.S. Stock Price, Earnings and Dividends historical data; https://shillerdata.com/