S&P 500 P/E Ratio

According to FactSet, from 2003 to October 2013, the S&P 500 had a P/E ratio (next 12 months’ earnings) that ranged from a low of ~ 10.5 (4th quarter 2008 and 3rd quarter 2011) to a high of 18.0 (beginning of 2004). As of the end of September 2013, it was 14.3 (vs. 14.0 for the previous 10 years). The median P/E among S&P 500 stocks as of October 2013 was 18.7 (vs. 14.8 at the end of 2011).

The Dow

The Dow is price-weighted; as of October 2013, IBM represented almost 10% of the entire 30-stock average. Alcoa, at < $10 a share, makes up < ½% of the Dow’s value. By comparison, IBM’s market capitalization means it is the 12th most valuable company in the S&P 500 (or 1.3% of the index vs. 3% for Apple).

For the 20-year period ending September 2013, a $10,000 investment in the Dow was worth $64,300 vs. $51,800 for the S&P 500. The Dow also outperformed the S&P over the past five, 10, and 15 years. Since 1981, the price-weighted Dow returned an average of one percentage point more than the capitalization-weighted S&P 500. Had the S&P 500 been price-weighted, it would have beaten the Dow by an average of one percentage point annually.

From the beginning of 1930 through 2012, the Dow’s total return averaged 9.6% (vs. 9.4% for the S&P 500).