Chart is for illustrative purposes only. Past performance is not necessarily an indication of future results. See index definitions in disclosures below.
Last week the S&P 500 Index (S&P 500) reached yet another historical high. After nearing a 20% decline in April, the index is up over 8% year to date. Its price-to-earnings (PE) ratio, a measure that indicates how much investors are willing to pay for earnings expected over the next 12 months, is now 22x compared to the roughly 17x average set since 1996. The wide discrepancy has led some investors to worry that the equity market has become too expensive.
Our analysis suggests that the technology sector has been a key driver of the above average PE ratios. While this could suggest tech is expensive, net margins, which indicate how efficiently companies convert revenues into actual profits, are 14.4% higher for the technology sector than the S&P 500. This marks the highest difference in history. In addition to better margins, relative valuations of technology stocks versus the S&P 500 are much lower than they were during the dotcom bubble.
Current valuations are above historical average and while we anticipate some volatility over the historically challenging August and September period, within equities, we lean into US large caps given the current higher margins.
The S&P 500 Index tracks the 500 largest publicly traded companies representing about 80% of U.S. market capitalization. The S&P 500 Information Technology Sector comprises those companies included in the S&P 500 that are listed as members of the GICS® information technology sector. Investors cannot invest directly into any index.
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MARK-781597-2025-07-30