Historical Earnings and P/E Ratios for the S&P 500 Index

The S&P 500 index is one of the most famous and widely followed U.S. stock market indices. It was created in 1957, although data for stocks representative of the index have been determined by backdating the index into the 19th century, as I previously discussed in an earlier post about historical dividends for the S&P 500 index.

The chart below illustrates the end-of-year closing values for the S&P 500 index, the earnings of the index, and the trailing P/E ratio for the index. The earnings shown below are "as-reported" earnings that take into account all of the various write-offs or other non-recurring expenses, as opposed to "operating earnings," which omit non-recurring expenses. There are supposedly non-recurring expenses for most of the companies in the index almost every year, so it makes sense to account for them.

Year	Index Closing Value (EOY)	Index Earnings	Trailing P/E Ratio
1957	39.99	$3.37	11.87
1958	55.21	$2.89	19.10
1959	59.89	$3.39	17.67
1960	58.11	$3.27	17.77
1961	71.55	$3.19	22.43
1962	63.10	$3.67	17.19
1963	75.02	$4.02	18.66
1964	84.75	$4.55	18.63
1965	92.43	$5.19	17.81
1966	80.33	$5.55	14.47
1967	96.47	$5.33	18.10
1968	103.86	$5.76	18.03
1969	92.06	$5.78	15.93
1970	92.15	$5.13	17.96
1971	102.09	$5.70	17.91
1972	118.05	$6.42	18.39
1973	97.55	$8.16	11.95
1974	68.56	$8.89	7.71
1975	90.19	$7.96	11.33
1976	107.46	$9.91	10.84
1977	95.10	$10.89	8.73
1978	96.11	$12.33	7.79
1979	107.94	$14.86	7.26
1980	135.76	$14.82	9.16
1981	122.55	$15.36	7.98
1982	140.64	$12.64	11.13
1983	164.93	$14.03	11.76
1984	167.24	$16.64	10.05
1985	211.28	$14.61	14.46
1986	242.17	$14.48	16.72
1987	247.08	$17.50	14.12
1988	277.72	$23.76	11.69
1989	353.40	$22.87	15.45
1990	330.22	$21.34	15.47
1991	417.09	$15.97	26.12
1992	435.71	$19.09	22.82
1993	466.45	$21.88	21.32
1994	459.27	$30.60	15.01
1995	615.93	$33.96	18.14
1996	740.74	$38.73	19.13
1997	970.43	$39.72	24.43
1998	1229.23	$37.71	32.60
1999	1469.25	$48.17	30.50
2000	1320.28	$50.00	26.41
2001	1148.08	$24.69	46.50
2002	879.82	$27.59	31.89
2003	1111.92	$48.74	22.81
2004	1211.92	$58.55	20.70
2005	1248.29	$69.93	17.85
2006	1418.30	$81.51	17.40

From 1957 through 2006, the average end-of-year trailing P/E ratio for the index was 17.58. However, as shown in the chart above, the trailing P/E ratio of the S&P 500 index fluctuated widely during the past 50 years.

During the 1960s, the average end-of-year trailing P/E ratio for the S&P 500 index was about 17.90. During the 1970s, the average end-of-year trailing P/E ratio plummeted to 11.99 during the inflationary economic conditions prevalent during that decade. The average end-of-year trailing P/E ratio rose slightly to 12.25 during the 1980s, and soared to 22.55 during the stock market boom of the 1990s. From 2000-2006, the average end-of-year trailing P/E ratio rose to an unsustainable 26.22 as economic conditions in the U.S. deteriorated and the stock market bubble burst. The data from 2000-2006 is skewed due to the substantial pullback in corporate earnings during 2001 and 2002.

The chart below (click on the image for a larger view) illustrates the annual trailing P/E ratio for the S&P 500 versus the average end-of-year trailing P/E ratio of 17.58 between 1957 and 2006. As shown, the trailing P/E ratio at the end of 2006 was below the average end-of-year P/E ratio of the index over the past 50 years. Accordingly, although valuations have clearly changed over time and are influenced by external events such as deteriorating or improving economic conditions, an argument can certainly be made that the S&P 500 had a reasonable valuation at the end of 2006 based on the S&P 500 data over the past 50 years.