The S&P 500 Index Is Very Pricey. Adjust, Don’t Flee.
Valuations harkening back to the dot-com bubble era are a symptom of tech’s incredible run. But don’t panic yet.
The stock market is full of bubbles — or maybe not. t
Photographer: Ian Kington/AFP via Getty Images
Always intense, the perennial debate over whether equities are too richly valued has become even more fervent of late. As the S&P 500 Index was setting new all-time highs last week, the benchmark’s blended forward price-earnings multiple hit 22.9, the most since 2020 (and eerily close to the highs of the dot-com bubble era at the turn of this century). Of 20 valuation metrics tracked by Bank of America Corp.’s Savita Subramanian, four have reached records and 19 are elevated by historical standards. Yes, these super high multiples still aren’t typical but before declaring stocks are in a bubble that is poised to burst consider a few critical caveats.
By and large, the S&P 500’s current multiple reflects the market capitalization-based weighting structure of the index, the increased dominance of some key technology stocks and a few extreme outliers. In fact, the equal-weighted version of the index — which puts $10 billion companies on par with $4.3 trillion Nvidia Corp. — has a blended forward price-earnings ratio of just 17.8, a whisker above its 10-year average.