Key Highlights

● The S&P 500's forward P/E sits below its five-year average.

● Forward P/E divides the index price by 12-month expected earnings.

● The index set a record as recently as October.

● Blended third-quarter Earnings growth is near a third.

The forward price-to-earnings ratio is one of Wall Street's favorite valuation yardsticks. It divides an index's price by the earnings analysts expect over the next 12 months. According to news reports's Earnings Insight of November 6, the S&P 500's forward P/E stood at 17.7 as of the November 5 close, below its five-year average of 19.8.

That was a striking reading for a market that set a record high as recently as October. It means investors were paying noticeably less for each dollar of expected profit than they typically have over the past five years.

Two forces squeezing the multiple

The first force is the "E." Earnings have been growing fast. Market data puts blended third-quarter earnings growth at nearly a third from a year earlier, ahead of the expectations analysts held when the quarter ended. When forecasts for future profits rise, the P/E falls unless prices rise just as quickly.

The second force is the "P." Prices fell hard heading into November 5. The S&P 500 suffered its worst week since April 2025, according to market coverage, as AI and chip stocks were hammered after the November 3 midterms. The Nasdaq Composite fell into correction territory on November 5, reports said, the very day FactSet took its snapshot.

Rates are part of the story

Interest rates also shape what investors will pay for future earnings. The 10-year Treasury Yield held near 4.87 on Monday, according to market reports, well below its October peak above 5.30, which was the highest in two decades. Futures markets heavily favor a Federal Reserve rate hike at the December 8-9 meeting under Chair Kevin Warsh, and the two-year yield rose on Monday.

Higher yields give investors an alternative to stocks and reduce the present value of distant profits, which tends to pull valuation multiples down. Chicago Fed President Austan Goolsbee added to the hawkish tone Monday, saying Inflation "was supposed to have gone away by now, and we're starting to see inflation kicking up in areas."

Monday's rally changes the math a little

Monday, November 9, 2026, nudged prices higher. The S&P 500 jumped 173.08 points to 7,549.94, its best day since April 8, as chip stocks such as Advanced Micro Devices (NASDAQ:AMD) and Applied Materials (NASDAQ:AMAT) soared. A gain of that size lifts the forward multiple modestly, though FactSet's next update will show by how much. The index remains below its October record, reports noted.

Concentration matters as well. A handful of megacaps, including Nvidia (NASDAQ:NVDA), which slid Monday amid an independent review by its board involving CEO Jensen Huang, carry outsized weight in the index's valuation. Nvidia alone is roughly one-fourteenth of the S&P 500, according to market data. The equal-weight S&P 500 rose nearly as much as the cap-weighted index on Monday, reports said, a sign the buying was broad.

Valuation Math After the Rally

A below-average P/E does not by itself predict where stocks go next; it can persist if rates stay high or earnings forecasts get cut. Investors will watch Tuesday's October consumer price index, the last before the Fed's December meeting, for clues on rates. Nvidia's November 17 report could move both the "P" and the "E" for the technology sector. And with analysts expecting fourth-quarter growth of more than a quarter, according to FactSet, any guidance cuts from remaining reporters would push the denominator in the opposite direction.