What Happened After The Last Time The S&P 500's Forward P/E Was This High

Valuation Insights - The forward price-earnings (P/E) multiple for the S&P 500 is currently 22.9x, significantly above its 10-year average of 18.6x [1] - Valuation ratios alone are not reliable predictors of future price movements, particularly over the next 12 months [2] - The forward P/E ratio is at a level similar to August 2020, when it peaked at 23.6x [6] Market Performance - The S&P 500 index has nearly doubled from around 3,500 in 2020 to approximately 6,900 today, with earnings also doubling during this period [5] - Stock prices and earnings have surged over the past five years, despite experiencing a bear market in 2022 and a 19% decline at the beginning of this year [8] Earnings Outlook - Earnings are expected to grow at a double-digit rate through at least 2027, which is a critical factor for long-term stock price movements [15] - P/E multiples can decrease if earnings rise while prices increase at a slower rate, indicating a potential for valuation compression without a drop in stock prices [12][13] Market Dynamics - There is a possibility of a market correction that could bring stock prices down, aligning P/E multiples closer to historical averages [10] - Alternatively, valuations may remain elevated, or prices could continue to rise while valuations decrease due to increasing earnings [11]