We have discussed forward P/E (price/earnings) ratios several times over the past year, so we thought with the recent market swoon and semi-recovery, it would be a good time to see where we stand on this influential valuation multiple. As of 1/18/2019, the forward P/E ratio over the next twelve months (NTM) for the S&P 500 stood at 15.3. What is interesting is that this is back above the 10-year average of the large-cap index. Does this mean that stocks are relatively expensive once again? Well, one could argue that the 10-year average is starting from an artificially low place after the Great Recession ended in 2009. However, it is important to note that it took a great deal of government stimulus in the form of tax cuts to corporations and a -20% market correction to make stocks cheap enough to fall slightly below this threshold late last year.
Of course, the market is always forward looking so it is interesting to see where other economic data projections are going. According to FactSet, the first half 2019 EPS (earnings per share) estimates have been chopped by -4.5%. This is the largest decline in 4 years. Also, you can see on the chart below that sales forecasts are beginning to trend down. The volatility in the data series is not unusual, but it has been a while since we have seen downward revisions in sales projections.