Question 1

What is the P/E ratio of the S&P 500?

Accepted Answer

The S&P 500 P/E ratio is the aggregate price-to-earnings ratio calculated by dividing the total market capitalisation of all S&P 500 companies by their combined trailing-twelve-month net income. It measures how much investors are paying per dollar of earnings across the index. The historical average is roughly 15-17x.

Question 2

What is the difference between trailing P/E and forward P/E?

Accepted Answer

Trailing P/E uses earnings from the past 12 months (actual reported results). Forward P/E uses consensus analyst earnings estimates for the next 12 months. Forward P/E is typically lower because analysts expect earnings to grow. A large gap between trailing and forward suggests strong expected growth.

Question 3

What is earnings yield?

Accepted Answer

Earnings yield is the inverse of P/E (i.e., 1 / P/E). It expresses how much earnings you get per dollar invested. For example, a P/E of 25 equals a 4% earnings yield. Investors compare earnings yield to risk-free Treasury yields to gauge whether stocks offer adequate compensation over bonds.

Question 4

How is the aggregate P/E calculated?

Accepted Answer

We use the market-cap-weighted method: total market cap of all index members divided by total positive net income (TTM). Loss-making companies contribute zero to the denominator, which is the standard institutional approach used by S&P Global.

Question 5

Why are some sector P/E ratios very high?

Accepted Answer

Sectors with many growth stocks (Technology, Consumer Discretionary) or heavy depreciation (Real Estate/REITs) tend to have elevated P/E ratios. This doesn't necessarily mean overvaluation — forward P/E and EV/EBITDA often give a more balanced picture for these sectors.

Question 6

Is a high P/E ratio bad?

Accepted Answer

Not necessarily. A high P/E can reflect strong expected growth (justified by forward earnings), a low-risk industry premium, or genuine overvaluation. Compare trailing P/E with forward P/E: if forward P/E is significantly lower, earnings are expected to grow, which may justify the current premium.

Index	P/E	Fwd P/E	P/B	EV/EBITDA	Earn. Yield	Div. Yield	Median P/E	Mkt Cap	Stocks
S&P 500	31.7	21.6	5.89	20.8	3.2%	0.97%	25.4	$74.4T	502
Nasdaq 100	40.5	23.9	11.08	28.1	2.5%	0.40%	32.8	$44.1T	100
Dow 30	32.9	24.4	9.42	23.5	3.0%	0.76%	27.8	$25.5T	30
Russell 1000	34.9	14.8	6.34	23.4	2.9%	0.68%	24.7	$62.0T	991
Russell 2000	24.1	19.7	2.30	13.8	4.2%	1.55%	17.8	$3.7T	1937

Sector	P/E	Fwd P/E	EV/EBITDA	Div Yield	Weight	Stocks
Technology	39.5	28.5	30.3	0.36%	60.6%	6
Consumer Cyclical	31.7	19.9	18.3	0.44%	12.8%	4
Financial Services	20.4	16.3	20.7	1.34%	8.4%	5
Consumer Defensive	31.3	29.4	21.1	1.66%	6.2%	3
Healthcare	23.7	23.5	16.6	2.19%	6.0%	4
Industrials	38.0	35.3	30.0	1.02%	2.7%	4
Energy	31.3	12.6	12.2	3.31%	1.6%	1
Communication Services	12.9	11.3	8.9	3.50%	1.5%	2
Basic Materials	31.3	26.5	20.6	0.99%	0.3%	1

#	Ticker	Company	Sector	P/E	Fwd P/E
1	VZ	Verizon Communications Inc.	Communication Services	11.3	9.2
2	TRV	The Travelers Companies, Inc.	Financial Services	13.1	10.6
3	HON	Honeywell International Inc.	Industrials	14.5	25.6
4	DIS	The Walt Disney Company	Communication Services	15.2	15.0
5	NKE	NIKE, Inc.	Consumer Cyclical	16.5	21.3
6	JPM	JPMorgan Chase & Co.	Financial Services	16.5	13.3
7	GS	The Goldman Sachs Group, Inc.	Financial Services	17.5	13.1
8	MCD	McDonald's Corporation	Consumer Cyclical	19.5	18.0
9	MRK	Merck & Co., Inc.	Healthcare	19.5	51.9
10	AXP	American Express Company	Financial Services	19.8	17.3

#	Ticker	Company	Sector	P/E	Fwd P/E
1	SHW	The Sherwin-Williams Company	Basic Materials	31.3	26.5
2	CVX	Chevron Corporation	Energy	31.3	12.6
3	CSCO	Cisco Systems, Inc.	Technology	35.4	27.6
4	AMZN	Amazon.com, Inc.	Consumer Cyclical	35.7	20.1
5	V	Visa Inc.	Financial Services	36.3	28.0
6	WMT	Walmart Inc.	Consumer Defensive	39.3	37.1
7	AAPL	Apple Inc.	Technology	44.7	37.8
8	CAT	Caterpillar Inc.	Industrials	45.9	31.7
9	NVDA	NVIDIA Corporation	Technology	48.8	25.8
10	BA	The Boeing Company	Industrials	76.5	—

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