S&P 500 more expensive than at the peak of the DOT-COM era. Price indicator to revenues at the historical maximum
The S&P 500 index is valued at 22.5 times the forecasted profits from the next 12 months, at the average from 2000 at the level of 16.8. What distinguishes the current market phase from the previous ones is Not only the level of indicators, but also the concentration of capitalization. The ten largest companies answered at the end of July for 39.5 percent. The values of the entire S&P 500 – this is the most in history. Nine of them have capitalization exceeding a trillion of dollars.
Technology companies dominatewhich still increase sales and profits at a pace, which many investors consider sufficient justification for high prices. Examples of Nvidia or Microsoft have become synonymous with paying for quality and growth.
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The market has already shown this year how painful such concentration can be. A short -term burst in April, caused by the White House tariff plans, exposed the sensitivity of the magnificent seven. The biggest technological stars then fell more strongly than the wide S&P 500, and the weighted index equally – in which each company counts the same – it behaved relatively better.
Record valuations S&P 500 are concerned
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As Steve Sosnick notes, the main strateg Interactive Brokers, in an interview with Wall Street Journal, Concentration itself does not have to be a problem as long as the conditions are conducive to leaders. The question is what will happen if the narrative reverses and the period of disappointment comes. Then the collision of very high valuations with “crowded” items can increase market susceptibility to longer declines – when everyone has the same, more difficult for new buyers who take over the baton.
What about medium -sized companies in the index
It is worth moving the headlight from the giants for a while and look at the average company in the index. After alignment of weight, i.e. treating each company equally, S&P 500 is valued at 1.76 sales values, due to a long -term average 1.43. It's still increased, but not so stunning levels. In other words, The market as a whole is expensive, but real price extravagance focuses on a small group of the largest.
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This dichotomy opens the field for selection. Mark Giambrone, head of the American Action at Barrow Hanley Global Investors, indicates that Apart from the group of the largest companies, you can still find attractive valuations. His team prefers businesses that can benefit from the effects of artificial intelligence – for example, by increasing productivity – but they are not valued as AI in itself. He looks skeptical about the durability of today's multipliers of the largest companies. History teaches that After all, not only dreams, but also numbers count. The more dramatic expectations the market enters into the prices, the more difficult it becomes to take them in reality.
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What does this mean for investors? First of all, the argument about the quality path works as long as the quality brings the results – and each breath can be severely punished. Secondly, concentration means that the behavior of several companies determines the fate of the entire index more than ever before. And what's more, under the surface of the index you can see the diversity of valuations, which rewards an active approach and readiness to go beyond the technological obviousness.
Today's bull market is not a carbon bubble from two decades ago
The largest companies generate real, powerful profits and cash flows. At the same time, however Mathematics of valuations remains inexorable. If the growth rate slows down at least a little, the multipliers stop matching new realities. And it is in this crevice between expectations and implementation that lies the greatest risk of the current market – as well as a chance for those who patiently seek values except the blinding giants of technological giants.
Note: The valuations included in the text are only informative and do not constitute a recommendation for the purchase or sale of financial products.
