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Russell 2000 Trading at Narrowest NTM P/E Premium to S&P 500 in Nearly 2-Years

Sep 28, 2018

  • The Russell 2000 is trading at the narrowest premium to the S&P500 on a NTM P/E basis in almost 2 years at 1.38x 
  • The divergence has been most pronounced in the month of September where the S&P 500 NTM P/E held steady at 16.85x while the Rusell 2000 NTM P/E contracted ½ a point to 23.19x 
  • Over the next 12-months, the S&P 500 should see “normalized” earnings growth of 21.24% after which earnings growth is expected to drop to +5.66% for the 12-months that follow-- the NTM PEG for the S&P 500 is well below 1.0x 
  • In comparison to the S&P 500, the Russell 2000 should see “normalized” earnings growth of +12.4% over the next 12-months after which growth will decelerate to 6.34% for the 12-months that follow – the NTM PEG for the Russell 2000 is above 1.0x 
  • The expected NTM dividend yield for the S&P 500 is expected to be +1.97% while the NTM dividend yield for the Russell 2000 is forecasted to be 1.10% 
  • On a purely value basis, it seems like the S&P 500 is a better “investment” than buying the Russell 2000 even if the difference between their NTM P/Es is near a 2-year low

S&P 500 vs Russell 2000 2-Year NTM P/E Ratio

Source: Bloomberg