Chart of the Week

Bubble or is this market different?

October 21, 2025

Time to Read: 3 min

The S&P 500 is up 14% year to date after gaining more than 20% annually over the past couple of years. Valuations are certainly elevated, but we believe the market is in a new world where higher multiples are normal rather than stretched.

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The S&P 500 is up 14% year to date after gaining more than 20% annually over the past couple of years. Some investors are speculating that we are amidst another tech bubble because technology companies have been leading the market higher. However, we believe the market is in a new world where higher multiples are normal rather than a sign of stretched valuations.

For some context, the S&P 500’s 12-month future price-to-earnings (PE) ratio is currently 22.4x, notably greater than the 16.8x average since 1996. While the index appears expensive relative to history, we believe this higher-multiple environment is justified. A key reason is the improved profitability of the market; net margins are 1.6x higher at 14% compared to the dot.com era. Similarly, free cash flow margins are 1.9x higher at 11%. In addition, the weight of the technology sector, which has the highest PE, has increased 1.6x since the dot.com era to 35% of the index. This naturally increases the PE of the index.

The changing market structure with the increased size of tech and the broader index’s higher profitability have led to higher PEs compared to long-term averages. In our view, the disconnect between current valuations and historical averages reflects a different type of market – not an overvalued one.

So, while we don’t believe the market is in a bubble, we believe that investors’ skepticism is healthy for keeping bull markets intact. Current valuations could consolidate from elevated levels, but we remain constructive on the forward outlook given improving earnings.

Chart of the Week | Macroeconomic

Not in a bubble

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.

Chart of the Week | Macroeconomic

Is the market rally broadening?

Stocks, as measured by the S&P 500, are up over 13% through early August. The solid gains have been fueled by a resilient economy, steady consumer spending, optimism around artificial intelligence and better-than-expected earnings growth. Still, some investors worry the advance may be too concentrated in technology and that AI-capex monetization may fall short of expectations. A closer look suggests that it is not just tech moving the market higher.

Chart of the Week | Macroeconomic

Fed friction?

Markets are navigating tensions between a Fed that offers less guidance and an inflation backdrop that remains sticky. Added uncertainty from Middle East tensions and energy-price swings is further shaping sentiment, with recent moves in Treasury yields suggesting the market wants the Fed to hike. However, with yield volatility expected to linger in the near term, we see today’s elevated Treasury yields as an especially compelling opportunity in fixed income.

Chart of the Week | Macroeconomic

Sizing up small caps

Small caps have outperformed this year despite the threat of higher interest rates, suggesting the rally is being driven by more than just diversification away from large cap tech stocks. Improving earnings expectations and a resilient U.S. economy support our view that small caps have further upside from here.