The S&P 500’s (.SPX) forward price-to-earnings ratio— a commonly used metric to value stocks— rose to 20.4 times this week, a level last reached in February 2022, according to LSEG Datastream.
That puts it far above the index’s historic average of 15.7.
It isn’t unusual for valuations to climb along with stock prices, and equities can stay expensive for a long time before returning to more moderate levels. Still, some investors believe the index’s growing multiple has made buying into the broad market a less enticing proposition. The S&P 500 has surged 21% since late October, making new record highs along the way.
It briefly crossed the 5,000 level at the end of Thursday’s session, before closing just below the mark.
– Lewis Krauskopf reporting for Reuters
The “Magnificent Seven” stocks— Apple AAPL, Microsoft MSFT, Alphabet GOOGL, Amazon AMZN, NVIDIA NVDA, Meta Platforms META and Tesla TSLA— now account for almost 30% of the S&P 500 index.