Part 1 - S&P 500: the price of perfection
Extreme valuation levels
At the end of September, the S&P 500 reached a valuation of 22.8x its net earnings according to JP Morgan data, compared with an average of 17x over the last 30 years. You have to go back to the dotcom bubble of 2000 to find similar levels.
Source: JP Morgan
The S&P 500 index appears statistically expensive across a wide range of metrics: amongst 20 ratios tracked by Bank of America, market capitalization relative to GDP, price-to-book (P/B), price-to-operating cash flow (P/OCF), and enterprise value-to-sales (EV/Sales) have reached record highs. Furthermore, based on five additional metrics (price-to-GAAP earnings (P/GAAP EPS), median P/E, EV/EBITDA, S&P vs. WTI comparison, and S&P vs. Russell 2000), the index has even surpassed March 2000 levels (during the dot-com bubble, see following table).
Source: Bank of America
We are therefore in what is known as "frothy" territory, but not yet in a situation of total disconnect from fundamentals.
Indeed - and this is an important point - historical comparisons are distorted: today's index is composed of higher-quality companies (more asset-light, less indebted, with higher margins and higher return on capital employed), which justifies a certain premium compared to other global indices but also compared to its own history.
Source: Yardeni
The financial leverage of the S&P 500 (weighted capitalizations) averages 0.6, which is much lower than in the 1990s and 2000s.
This gives the index a structural advantage. However, the concentration of capital (a few dominant mega-caps) and the dominance of passive capital make the whole more vulnerable to external triggers.
Implications for future returns
Several recent studies confirm that when a market starts at high multiples, future ten-year returns tend to be more modest. For example, a Goldman Sachs study shows that today's very high CAPE ratio significantly reduces the prospects for future returns.
Source: Goldman Sachs
Source: Goldman Sachs
Similarly, according to a study by Vanguard, US equities remain at high valuation levels even as economic uncertainty persists.
Source: Vanguard
In short: the premium for taking equity risk is lower today.
Part 2 - Rising risks for the S&P 500
Accumulation of bear market signals
Over time, stockmarket crashes have often been preceded by a number of signposts: high multiples, growth stocks outperforming value stocks, credit tensions, etc. According to Bank of America, around 60% of the classic bear market signals have already been triggered, which is close to the average (70%) observed before historic market peaks. This suggests that the potential floor for the index could be lower than the current level.
Consumer resilience vs. AI pressure
A key driver of performance has been the resilience of the U.S. consumer and the rise of AI. However, these two forces could be in tension: AI may reduce demand for certain professional services (and therefore for certain consumer revenues), which could erode an important pillar of earnings growth.
New players in credit creation and private debt
Since the 2008 crisis, credit has shifted away from traditional big banks to private lenders. This more opaque channel is now accompanied by strong growth in the technology/AI sector, government financing, and even asset purchases by the state (which is not, in itself, a threat, but makes the system more complex). The problem lies in liquidity: if pension funds and other investors are exposed to poorly valued private assets, they may be forced to sell S&P 500 shares to meet liquidity requirements, triggering a ripple effect.
Macroeconomic fog
After improved visibility in the spring, the summer/fall of 2025 was marked by a resurgence of trade tensions (China/US), a partial US government shutdown, and an interruption in certain macro data flows. This loss of visibility will likely weigh on activity in the short term. This reinforces the idea that the upward drift in the index may lack macroeconomic catalysts in the short term.
Corporate earnings
Q2 results paint a mixed picture: some industrial players reported uncertainty rather than an acceleration in unlocking demand. Banks, although better capitalized than two years ago, are facing broader credit signals. The weak link could be liquidity: the dominance of passive funds and growing exposure to less liquid financial structures make the index potentially vulnerable in the event of a reversal.
Conclusion/Personal opinion
The S&P 500 is at a crossroads: on the one hand, real structural quality, technological dominance, and resilient US consumers; on the other, high valuations, increased concentration, some financial complexity, and several warning signs.
The potential for returns remains real, but is now offset by a higher level of risk. As far as the S&P 500 is concerned, the coming decade is statistically likely to deliver weaker performance than the previous decade, but that does not mean that investors should avoid the US market. Even though US equities remain structured for growth, other areas offer more attractive valuation premiums: small caps, developed markets outside the US, and even certain pockets of value.
For us as investors, the key word is selectivity. Selectivity in terms of geographical weighting, selectivity in terms of sector, selectivity in terms of individual stocks, and being attentive to risks and valuations. This is what we strive to apply in our Investor portfolios at MarketScreener.
I personally find the healthcare sector particularly interesting from a 12-18 month perspective, as it has historically outperformed and is composed of above-average quality companies that are currently trading at attractive valuations.
Source: MSCI
