U.S. Equities Are Dearer Than the Dot-Com Era—And Narrower Than Ever
The S&P 500’s record run carries a record price tag: sales multiples are at all-time highs and leadership is concentrated in a handful of trillion-dollar names. If momentum cools or policy shocks hit, crowded positioning magnifies the downside. Beneath the surface, equal-weight and overlooked cyclicals still offer saner entry points.
Summary
The index’s price-to-sales multiple (~3.23×) is at a record, while forward P/E (~22.5×) sits far above the ~16.8× average since 2000. Market cap is tightly clustered at the top—10 firms now control ~39.5% of the S&P 500’s value. Leaders like Nvidia and Microsoft justify some premium with exceptional margins, but crowding raises drawdown risk if narratives wobble.
Why It’s Expensive—and Fragile
- Profit outliers: A few mega-caps carry index EPS and command premium multiples.
- Crowding: When everyone owns the same winners, pullbacks can overshoot as marginal buyers disappear.
- Policy shocks: April’s tariff scare showed leadership underperforms in stress.
Where Value Still Lives
The equal-weight S&P around 1.76× sales (vs. ~1.43× long-run) isn’t cheap, but it isn’t bubble-rich either. Away from mega-caps, you’ll still find mid-teens ROIC and AI-enabled productivity stories without frontier-model price tags.
Investor Takeaways
- Barbell: Core quality compounders + right-sized AI leaders.
- De-crowd: Blend in equal-weight or quality/value sleeves.
- Be patient on entry: Use earnings air-pockets to add outside mega-caps.
- Watch breadth/dispersion: Narrow breadth with rising dispersion often precedes rotations.
Outlook
Expensive and concentrated markets can levitate—until expectations slip. The prudent stance is positioning humility: respect leadership, price the risk, and accumulate the durable middle where surprises can still be positive.
