SPX P/E Index—Knowing the Basics

The Standard and Poors (S&P) Large Cap 500 Index ($SPX) lists the 500 largest “large-cap” stocks (stocks from major companies in various industries).

What Is the Price-to-Earnings (P/E) Ratio?

The price-to-earnings ratio is the ratio for valuing a company that measures its current share price relative to its earnings per share (EPS). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple.

Figure 1.  SPX P/E Index (Source: @CyclesFan; Courtesy: stockcharts.com)

SPX P/E Index

On Twitter, CyclesFan had commented on the current SPX P/E level:

The $SPX price earnings ratio is now at 18.64, a bit higher than it was at the June low. When it gets to ~16 where it was at the 2020 low it will start being attractive. If it drops to below 13, where it was at the 2011 low, it will become very attractive.

If you look at Figure 2, SPX P/E Index actually peaked in 03/2021 and SPX peaked only in 12/2021, which it had given us a 9-month in-advance warning for the frothy market in 2021. 

Figure 2.  SPX P/E Index superimposed with SPX (Courtesy: stockcharts.com)