S&P 500’s Forward Valuation Returns to Its Decade Average
The index’s earnings outlook has improved, even as higher interest rates and concerns about AI-related profits weigh on valuations.
The S&P 500’s forward price-to-earnings ratio has fallen to 19 from 22, matching its 10-year average despite the index’s 14% year-to-date gain.
Goldman Sachs strategist Ben Snider attributed the decline partly to higher interest rates. He also said investors are concerned that the AI investment boom may be lifting profits beyond sustainable levels.
The earnings outlook has strengthened. Analysts raised their third-quarter earnings projections for S&P 500 companies by 1.3% since June 30, FactSet said. Typically, estimates fall during a quarter: they have declined by an average of 2.2% over the past five years and 2.5% over the past 10.
Analysts expect S&P 500 earnings to grow 29.1% year over year. If that forecast holds, it would be the third straight quarter of growth above 25% and the eighth consecutive quarter of double-digit growth, according to FactSet. All 11 sectors are projected to post annual growth.
Evercore ISI strategist Julian Emanuel said stronger earnings growth has made valuations reasonable again. He said the debate now centers on whether fundamental growth can continue into 2027.
This article was produced with the help of AI technology.
Source: Yahoo Finance
