The latest update of our signature tool, The S&P 500 at Your Fingertips, in which we've brought the tool up to date with all the price, dividends, earnings and inflation data for the S&P 500 through September 2007, comes just as the index has retreated below the new highs it has set in the past week.
For those just discovering Political Calculations, our S&P 500 tool can find the rate of return an investment in the S&P 500 would realize between any two months from January 1871 through September 2007, both with and without reinvesting dividends and with and without the effect of inflation! Here are the S&P 500's compound annual growth rates since January 1871, since September 2006 (Year over Year) and since January 2007 (Year to Date):
| Selected S&P 500 Performance Data, January 1871 through September 2007 | |||
|---|---|---|---|
| Annualized Rates | Nominal Rate of Return (%) | Rate of Inflation (%) | Real Rate of Return (%) |
| Since January 1871 | 9.17 | 2.08 | 7.09 |
| Year over Year | 15.64 | 2.76 | 12.88 |
| Year to Date | 9.70 | 4.53 | 5.17 |
This month's bonus chart illustrates the history of the Price/Earnings Ratio (P/E Ratio) for the S&P 500 since January 1871:
For the chart above, the P/E ratio is found by taking the average monthly price per share for the S&P 500 and dividing it by the preceding 12 months of earnings per share for the index (one-year trailing earnings).
What might be surprising to most people is that the all-time peak in the S&P 500's P/E ratio was set nearly three years after the peak of the stock market in the midst (and previous all-time peak of the P/E ratio) during the bubble market of the late 1990s! This outcome is really a bit of a mathematical artifact - it occurred as stock market earnings bottomed out during the recession of 2001 while the forward-looking nature of the stock market anticipated a recovery, increasing the relative price per share with respect to the past year's earnings per share.
Since then, earnings in the S&P 500 have largely caught up to the index's price per share, which now puts the P/E ratio for September 2007 at 17.40, marginally higher than the P/E ratio's long term average of 14.87.
- posted by Ironman at 5:51 AM | Permalink |
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