https://www.currentmarketvaluation.com/models/price-earnings.php
FinViz offers best-in-class stock screening and valuation analysis tools. Instantly screen the full market for any company with the metrics (cashflow, profit, dividends, etc) you desire.
The P/E ratio is a classic measure of any security's value, indicating how many years of profits (at the current rate) it takes to recoup an investment in the stock. The current S&P500 10-year P/E Ratio is 31.3. This is 56% above the modern-era market average of 19.6, putting the current P/E 1.4 standard deviations above the modern-era average. This suggests that the market is Overvalued. The below chart shows the historical trend of this ratio. For more information on this model's methodology and our analysis, keep reading below.
P/E Rates Vs. Modern Average
P/E ratios are a cornerstone of fundamental stock valuation analysis, and are most commonly looked at for individual firms. The P/E ratio is (as the name suggests), a ratio of a stock price divided by the firm's yearly earnings per share. The implied logic here is that a mature firm (with no capex investments) returns all profits to shareholders via dividends. The P/E then becomes a measure of how many years it will take the investor to earn back their principal from the initial investment. For example, if you buy 1 share of ACME Co for $100, and ACME consistently makes profits of $10 per-share, per-year, then it follows that it would take the investor 10 years to earn back their original $100 investment.
P/E is (unless otherwise stated) calculated using the last reported actual earnings of the company. Let's look at another example - one where we expect future earnings to grow. Imagine TechCo was founded 5 years ago, and their earnings per year (per share) have been $0, $1, $1.50, $2, and $5. Let's also assume that TechCo's current share price is $100, just like ACME in the prior example. Because the most recent earnings-per-share for TechCo is $5, that means TechCo's P/E ratio is $100/$5 = 20. The message here is that, at current earnings, investors in TechCo will theoretically get their money back after 20 years. This is twice as high as ACME -- but why? If it takes twice as long for TechCo to make profits as it does for ACME, why is their stock valued at the same price? The answer is obviously the growth rate of TechCo's profits. TechCo is a new company, and has been growing profits very quickly over the last 5 years, clearly investors expect that to continue. This is why high-growth companies tend to have very high P/Es - the market has very high expectations for their future results (relative to current results).
The same analysis can be done to the entire stock market. By adding up the price of every share in the S&P500, and comparing that to the sum of all earnings-per-share generated by those companies, you can easily calculate the P/E ratio of the US stock market.
Below are both the total S&P500 aggregate value, and aggregate earnings. Figure 1 shows the data on a normal scale chart, Figure 2 shows the same data on a logarithmic scale, which highlights the relationship between the two more clearly. Note that all data here is adjusted for inflation.
S&P500 Price and Earnings - Normal Scale
S&P500 Price and Earnings - Log Scale
S&P500 Price and Earnings - Log Scale - Recent
Figure 2 above shows a clear relationship between price and earnings. Just by eyeballing that chart you can see that both have steadily risen over time, and that S&P500 price tends to stay (very roughly) 10x-20x larger than yearly earnings. Chart 2A shows only the last twenty years of data, which highlights the conspicuous divergence of this trend in the prior year, where S&P price has gone up, but earnings are dropping precipitously. Let's observe this relationship between Price and Earnings explicitly by charting the P/E ratio, below.
S&P500 P/E Ratio