S&P 500 Price-to-Sales Ratio and Stock Market Returns

A subscriber suggested looking at the S&P 500 price-to-sales ratio (P/S) as an indicator for timing the U.S. stock market. To investigate, we relate P/S and change in P/S to S&P 500 Index (SP500) quarterly returns, as follows:

1. Conduct lead-lag analyses for quarterly P/S versus quarterly SP500 returns, and for quarterly change in P/S versus quarterly SP500 returns.
2. Calculate average next-quarter SP500 returns by range of quarterly values of P/S and quarterly changes in P/S.

Using quarterly S&P 500 P/S data since the end of December 2000 and quarterly closing SP500 levels since September 2000, both through Mar 2025, we find that: