S&P 500 PRICE-TO-EARNINGS RATIO
How expensive is the stock market right now?
The PE ratio — the S&P 500's price divided by its trailing 12-month earnings — is the simplest, oldest yardstick for whether stocks are cheap or expensive. Below is 155 years of monthly readings, pulled from the classic Robert Shiller dataset.
Where we stand today
PE ratio — 1871 through today
Monthly readings, connected. The dashed cyan line is the long-term average. The green band below the average marks the "cheap" zone; the red band above marks the "expensive" zone.
Chart y-axis is capped at 50 for readability. The 2009 spike to ~124 is a well-known artifact of the GFC earnings collapse (denominator near zero), not a real "market at 124x earnings" moment.
What happens next when the PE is extreme?
For every month with 12 months of data ahead of it, we recorded the S&P 500's real total return (dividends reinvested, inflation-adjusted) over the next 1 year and next 5 years. Then we bucketed those months by PE ratio. The result is a plain-English answer to: "when the PE was this, the market went on to do this."
What the data actually says
Cheap markets pay you.
When the PE ratio dropped below 10, forward 5-year real returns averaged roughly +13% per year. Those readings happened in 1917–1920, the 1930s recovery, 1948–1954, 1974–1982, and briefly in 2009. All were terrifying times to buy — and all of them rewarded buyers handsomely.
Takeaway: The single most consistent pattern in 155 years of stock-market history is that low starting valuations produce high forward returns.
Expensive markets punish you.
When the PE has been above 30 (excluding the 2009 GFC data artifact), forward 5-year real returns have averaged only +1.5% per year and were positive just 43% of the time. This zone captures 1929, 1998–2001, and 2021–today. Compare that to Very Cheap (PE below 10), which delivered +12.4% real annualized with a 92% hit rate.
Takeaway: A high PE doesn't tell you when stocks will fall. It just says the multi-year return that follows is likely to be well below the long-term average — sometimes zero.
PE is a horrible short-term timing tool.
The 12-month forward return is barely correlated with the current PE. A high PE can go higher for years (1997–2000 saw PE climb from 30 to 40+ while stocks doubled). Valuation matters over years, not months.
Takeaway: Don't sell everything because the PE is high. Use it to size your expectations for the next decade, not to time the next quarter.
Methodology & data sources
PE ratio series: Robert Shiller's monthly dataset (Yale) for the historical baseline, extended through the present via multpl.com, which republishes the same series with a monthly refresh.
The PE ratio here is the classic trailing 12-month P/E — index price divided by the sum of the previous four quarters of reported earnings. This is not the Shiller CAPE (10-year cyclically-adjusted PE), which smooths earnings across a full business cycle and typically reads higher.
Forward-return computation: uses Shiller's "Real Total Return Price" series — S&P 500 price with dividends reinvested, adjusted for CPI inflation. Returns shown are annualized real returns, so they're directly comparable across decades regardless of the inflation regime.
Refresh: the current-month PE reading refreshes daily via our GitHub Actions workflow. Real Total Return Price is a stable historical series that only extends as Shiller publishes new numbers (typically once a year).
The 2009 anomaly: the trailing PE hit ~124 in mid-2009 not because stocks were bubblicious but because reported earnings crashed to nearly zero during the financial crisis. The ratio spiked; the expensiveness did not. This is a well-known artifact and why some analysts prefer CAPE.
Reminder: None of this is investment advice. Historical valuation patterns are not guarantees. The market has stayed expensive for many years at a time. Always do your own research or talk to a financial professional.