S&P 500 valuations under different interest rate regimes

Sources: Bloomberg and Wells Fargo Investment Institute. Monthly data from January 1, 1963 to August 31, 2021. The average price to earnings was calculated using the S&P 500 index from 1963 – 2021. The S&P 500 Index is a market-capitalization-weighted index considered representative of the U.S. stock market. Inflation represented by the Consumer Price Index. The Consumer Price Index measures the average price of a basket of goods and services. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results.

Key Takeaways

  • Higher nominal interest rates tend to contribute to lower price-to-earnings (P/E).
  • We do not expect meaningful declines in P/E multiples, which have historically not declined until rates have reached significantly higher levels.