Chart of the Week

Not in a bubble

August 18, 2026

Time to Read: 3 mins

As the S&P 500 approaches all-time highs, there are renewed concerns among investors about elevated valuations. However, historically strong profitability and expected earnings growth appear to support current pricing. In addition, the current S&P 500 price-to-earnings (P/E) ratio is roughly equal to the average since Covid. As a result, we do not view U.S. equities as being in bubble territory and we remain constructive on the asset class.

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U.S. equity investors are understandably encouraged to see the S&P 500 back near all-time highs, but rising stock prices have also revived concerns that the market may be overvalued.

At roughly 20.2x forward earnings, the S&P 500’s valuation is broadly in line with its average since 2020, even if it remains above pre-Covid norms. Importantly, profitability is also stronger than in prior periods. Net margins are well above their long-term historical averages, likely reflecting improved operating efficiency and resilient business models. As a result, we believe higher margins justify the level of current P/E ratios when compared to history. Consensus earnings expectations are also robust, with growth projected at 31% this year and 13% in 2027 — both well above long-term historical averages.

Given these factors, we believe the market’s current P/E multiple appears reasonable. Therefore, we do not view U.S. equities as being in bubble territory, and we remain constructive on the asset class.

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