A few weeks ago as the S&P 500 hit a new record, this reporter noted that the index virtually hit a landmark reading, a price to earnings ratio of 30. I actually cheated a bit, as I pointed out in the piece: The actual figure was around 29.85, close enough that I rounded it to 30. The point then was, this is a big, big number that you seldom see mentioned by Wall Street analysts or pundits, who’d rather cite a lower, more marketable multiple based on “next year’s” (always over-estimated) profits or “operating earnings” that exclude real charges as basic as interest expense.
But now it’s in the record books: At 2:35 PM on August 28, the S&P hit another fresh summit at 6501, and the real, not-rounded-up PE hit 30. That ratio’s based on what matters most, GAAP earnings posted over the last four quarters, profits that really happened as opposed to usually over-rosy predictions. The only span in recent decades when big cap stocks have been this expensive: Ten quarters during the tech frenzy that stretched from Q4 of 1999 to Q1 of 2002. (The PE also briefly exceeded 30 during the pandemic and following the GFC, but only because earnings collapsed, sinking the denominator and skewing the multiple artificially high.)
