With stocks selling off, bullish market watchers have pointed out that it may be time to buy the dip as stocks get cheaper.
But according to data from FactSet, stocks are still relatively expensive.
Based on the nearly 90% of S&P 500 companies that have reported earnings, the price-to-earnings (P/E) ratio for the index is still above its long-term averages.
“The P/E ratio of 14.7 for the index as a whole is above the prior 5-year average forward 12-month P/E ratio of 14.4, and above the prior 10-year average forward 12-month P/E ratio of 14.2,” wrote FactSet’s John Butters.
This valuation, though still higher than normal, is much closer to averages than it was even 6 weeks ago when the S&P 500’s forward 12-month P/E hit 16.1.
“Since the start of the first quarter, the price of the index has decreased by 10.5%, while the forward 12- month EPS estimate has decreased by 2.1%,” Butters wrote.
The S&P’s P/E ratio had become inflated during the first half of 2015 as expectations for earnings fell while stock prices remained stable.
But even though stock prices have slumped to fall in-line with declining earnings, the market is still looking a touch expensive.
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