In last week’s Economics Weekly, we broke down the annual returns of the S&P 500 index into their component parts—dividend yield, inflation, real earnings growth, and P/E multiple expansion—in an effort to discern what have been the drivers of the index’s return going back to 1871, and specifically to what degree it has been driven by fundamental factors (i.e., real earnings growth and dividend yields) versus investor euphoria in the form of multiple expansion or by inflation (chart 1). In this week’s Economics Weekly we delve a little deeper into the S&P 500 and run a similar exercise for the index’s 10 major sectors (excluding the relatively new addition of real estate).
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.