The table below lists the current & historical CAPE ratios by GICS sector, calculated using the 500 largest public U.S. companies. If the Shiller PE ratio of a sector is lower than its historical average, this might indicate that the sector is currently undervalued and vice versa. The overall CAPE of the US stock market as a whole is currently 31.30 (Jan 29th, 2020). Note: The Real Estate sector is combined with the Financials sector.
For the latest figures & full historical data, check the sector valuation datasets by Siblis Research.
CAPE Ratio by GICS Sector (Large Cap U.S. Companies)
Need the latest data? Subscribe to our U.S. Stock Market Sector & Industry Key Valuation Metrics dataset which provides you historical P/E (TTM) ratios, P/B ratios, CAPE ratios, Free Cash Flow yields & EV/EBITDA multiples by GICS Sector & Industry (calculated using the 500 largest public companies at a given date), including annual sector performance data. Check a sample dataset from here.
Need the full raw data? Subscribe to U.S. Stock Market Sector/Industry Valuation Reseacher Dataset by Siblis Research that provides all the formulas and data used to calculate the P/E and CAPE ratios, including market caps, earnings, enterprise values, EBITDAs, free cash flows and historical GICS Sector/Industry classifications of the companies used to calculate the metrics since 3/31/1979. Check a sample file from here.
How are the sector specific Shiller PE ratios calculated?
Below is a short summary how the values are calculated. Examine the researcher dataset with full raw data to see the actual formulas that have been used.
- Collect quarterly earnings, outstanding shares and share prices of the selected companies for the required period.
- Calculate the total earnings of all companies part of a sector.
- Apply consumer price index (CPI) factors to adjust the earnings for inflation.
- Calculate 10-year average of CPI-adjusted trailing twelve months earnings.
- Calculate total market capitalization of companies part of a sector for the required period. Make sure to include only companies that were part of the index during a specific time.
- Calculate CAPE ratio of a sector by dividing the total market cap of the companies part of a sector by the CPI-adjusted 10-year average earnings.
Maybe the best way to familiarize yourself with how the CAPE ratio is calculated is to check the Excel-file that Professor Robert Shiller is publicly sharing. The file contains both the monthly data and the simple formulas used to calculate the ratio for the whole S&P 500 index. Calculating the sector specific ratios require some extra adjustments because the amount of companies belonging to a specific sector keeps changing. For example, the financials crisis of 2008 decreased the number of financial companies part of the index from 96 to 87.
The earnings are adjusted for inflation using Consumer Price Index.
Valuations in March 2018
By purely looking at the CAPE ratios, Industrials companies are the cheapest and Consumer Discretionary is the most expensive sector. However, comparing sectors directly to each other can be misleading. It might make more sense to compare the current Shiller PE of a sector to its historical average ratio. Using this methodology, IT companies turn out to be the cheapest. However, it is important to remember that the historical average CAPE for IT sector includes the sky-high valuations during the dot-com boom of 1999-2000. If this era is excluded from the historical average, IT firms are far from a bargain.
Based on the CAPE ratios, six of the ten sectors are valued higher than their historical averages. Based on the historical earnings, Consumer Discretionary, Energy, Financials, Materials, Telecoms and Utilities are valued higher and Consumer Staples, Health Care, Industrials and Information Technology are valued lower than their average valuations.
Note about FANG stocks: Facebook, Netflix and Amazon.com are part of Consumer Discretionary and Alphabet (Google) is part of Information Technology.
Shiller PE and sector performance
Can the CAPE ratio be used to indicate what will be the long term performance of a specific sector? In a white paper published by Barclay’s research department and Professor Shiller (to promote the new ETN/Exchange Traded Note created by the bank), the group developed a sector rotation strategy that outperformed annual returns of S&P 500 total return index with nearly 4%. The returns are indeed impressive but it is always easy to beat the market using historical data. Time will tell if the CAPE ratio remains a useful indicator.
In February 2015, Ossiam launched an exchange traded fund (The Ossiam Shiller Barclays Cape Europe Sector Value) that revolves around European equities following the same strategy described in the paper. The ETF is traded on the London Stock Exchange.
Comparing the valuations of different sectors using CAPE
The CAPE ratios varies substantially between the sectors. In December 2015, consumer discretionary segment’s PE 10 ratio was three times higher than the ratio of energy companies. Does this mean that consumer discretionary companies are seriously overvalued?
Comparing the valuations of different industries is tricky. Investors have different expectation for the timeframe of future earnings of different companies. For some new and hot high-tech firm, most of the company’s value is based on hopes of fast growth and the current earnings of the company do not really matter. But for mature firms, the retained earnings in short timeframe are much more important. The same holds true for the whole sectors: expectations of when the money is coming in are not the same.
However, someone might raise the point that the average 10-year price-earnings of IT companies has been higher than the P/E of energy firms and utilities all the time for the past 30 years. This raises the question if the hopes of the investors have been constantly too high for some industries.
Some sectors traditionally viewed as cyclical, like consumer discretionary and IT, have higher average CAPE than defensive like utilities and consumer staples. But the average Shiller price-earnings ratios of consumer staples (defensive), health care (defensive), materials (cyclical) and industrials (cyclical) are very close to each other.
Global Industry Classification Standard (GICS)
GICS industry taxonomy is used to assign a company into one of the ten sectors based on the company’s principal business activity. The taxonomy system has also 24 industry groups, for example Industrials is divided into Capital Goods, Commercial & Professional Services and Transportation.
The system does not have a class for conglomerates. The most famous of conglomerate, Warren Buffet’s Berkshire Hathaway, is currently assigned to Financials.
S&P Dow Jones Indices and MSCI, companies that are maintaining the classification system, have announced that Real Estate will be created as a new sector, making the total number of main classes to be 11. Real Estate is currently part of Financials. The change will take effect on August 31, 2016.