S&P 500's forward PE dips to 2023 low, and below its 10-year average
SPY•The S&P 500's forward price-to-earnings ratio has fallen to about 19.1, its lowest since April 2023 and slightly below its 10-year average of 19.2. Analysts expect third-quarter earnings to rise more than 30%, with AI-related technology companies driving most of the growth.
1. Forward multiple declines
The S&P 500's forward PE has dropped to about 19.1, its lowest level since April 2023 and just below its 10-year average of 19.2, according to LSEG data. It fell as low as 17.6 in April 2023.
2. Earnings expectations rise
Unlike the 2023 decline, which followed falling stock prices, the recent drop in the multiple comes while the index trades near record highs. The S&P 500 is up 13% so far in 2026 after reaching a record last week, and the decline in its forward PE is almost entirely due to rising earnings expectations. Analysts on average expect third-quarter S&P 500 earnings to surge more than 30%, with AI-related technology companies fueling most of the growth.
3. AI stocks face rate concerns
Alphabet, Microsoft and others have signaled confidence in their large AI data-center build-outs, while smaller AI-related companies could see their plans interrupted. A hotter-than-expected inflation report on Wednesday sparked a sell-off in AI-related stocks reliant on debt to fund expansion, as investors weighed the possibility of aggressive Federal Reserve rate hikes.
