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.