Fidelity’s Timmer says S&P 500's forward P/E ratio drop amid recent selloff “good to see”
The recent selloff in equities has pulled down the S&P 500’s (SP500) forward earnings multiple, and that’s a welcome development, according to Fidelity’s global macro director.
The benchmark index’s forward P/E ratio fell to 19.9x from 21.2x after a 6% drawdown since March 28, Fidelity’s Jurrien Timmer said in a Wednesday post on X (formerly Twitter). The S&P 500 (SP500) after rounding off March at a record high then slumped during a three-week run of losses.
“Valuations were high, so this is good to see,” he said of the declining ratio. “Price should decline less than valuations during this correction since earnings estimates are rising 12%. Pass the baton.”
The S&P 500 (SP500) was still trading above its 5-year and 10-year average of 19.1 times and 17.8 times expected earnings over the next 12 months, with those historical snapshots of forward P/E ratios coming from a FactSet report in mid-April.
The large-cap equity index on Thursday resumed a selloff after being in recovery mode this week. Losses were set off by a plunge in Meta Platforms (META) on disappointing Q2 guidance and a weaker-than-expected Q1 GDP reading, pushing the 2-year bond yield (US2YR) back up to 5%. Year to date, the index was up about 6%.
Corporate America is in the midst of rolling out Q1 financial results. So far, S&P 500 (SP500) companies were turning in upside earnings surprises at the highest rate in more than two years, UBS said in a note this week.