P/E Compression
Median 1M return: +2.2%, 100% win rate.
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S&P 500 P/E compression episodes from rolling-peak P/E - tier breach forward returns.
- 11 signals since 1950.
- Median 1M return: +2.2%, 100% win rate.
- P/E at 26.7x — -78.5% compression from peak (2009-05). Median 3 months forward: +8.4%. Dip-buy zone — historically rewards 1–3 month patience.
When to run this study
Run during or after significant market selloffs to contextualize how much multiple compression has occurred vs historical episodes. The key insight: P/E compressions can be price-driven (market panic) or earnings-driven (growth). Check whether P/E troughs have historically preceded price bottoms, coincided with them, or lagged. Also note the current P/E level vs its long-run percentile — a fast compression from an elevated level behaves differently than from a fair-value start.
Historical results
Forward Returns by P/E Compression Depth
| Compression Depth | N | 1M Median | 1M Win% | 3M Median | 3M Win% | 6M Median | 6M Win% | 12M Median | 12M Win% |
|---|---|---|---|---|---|---|---|---|---|
| >30% compression | 4 | 2.17 | 100 | 8.41 | 100 | 17.16 | 100 | 28.01 | 100 |
| 20-30% compression | 1 | 0.34 | 100 | 4.46 | 100 | -11.91 | 0 | -2.70 | 0 |
| 15-20% compression | 2 | 1.48 | 50 | 4.48 | 100 | 11.24 | 100 | 32.63 | 100 |
| 10-15% compression | 4 | 1.22 | 75 | 7.61 | 100 | 11.07 | 50 | 21.55 | 75 |