As the S&P 500 climbs higher and higher, its trailing 12-month P/E ratio continues to climb as well.  And there won’t be much opportunity for multiple compression until the bulk of S&P 500 companies report Q4 numbers in late January.

As shown below, the S&P’s 12-month P/E is now at 22.88 — just a hair below 23.

Below is a chart showing the S&P’s P/E ratio going back to 1980.  The line is red when the P/E ratio is above the level it’s at right now.  As you can see, there have only been a few periods over the last 35+ years where the index’s P/E was higher.  It didn’t once get above this level during the 2002-2007 bull market, but it was consistently above 23 during the final three years of the bull market that ended in early 2000.  From 1998 to 2000, the S&P’s P/E expanded from 23 up to 30+ as the Dot Com bubble reached its zenith.  Over this period, the S&P experienced a massive rally as the Tech sector soared.  While valuations are indeed elevated right now, we always note that high valuations alone are not a catalyst for corrections or bear markets.

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