The S&P 500 index is trading at levels the market hasn’t seen since the dot-com bubble. But while investors panicked back then, today Wall Street is more likely adapting to new realities.
As Yahoo Finance notes, more and more analysts are asking what should now be considered the norm. What used to look like a warning sign is now perceived as the new standard — amid growing interest in AI, strong reports from tech giants, and investors chasing returns.
Savita Subramanian, equity strategist at Bank of America, told clients this week that it might be time to accept high multiples as the new standard.
“Perhaps we should anchor ourselves to today’s valuations as the new norm, rather than wait for a return to the averages of past years,” she wrote in her Wednesday note.
According to Sam Stovall, chief investment strategist at CFRA Research, the S&P 500 is currently trading at about a 40% premium to the long-term average of forward valuations. However, if you compare only the last five years, the gap shrinks to single digits. It was during this period that tech giants cemented their dominance in both capitalization and profits.
Jerome Powell expressed concern about stock valuations, analysts disagree
The Fed is also watching the overheated market. Last week, Jerome Powell said that stocks look “quite highly valued.” His words were immediately compared to Alan Greenspan’s 1996 speech about “irrational exuberance” — three years before the dot-com bubble burst. But despite the Fed chief’s warnings, most analysts do not call what is happening a bubble.
Sonali Basak, chief investment strategist at iCapital, noted in a LinkedIn post that investors shouldn’t try to guess the market top. She quoted Barry Ritholtz, CIO of Ritholtz Wealth Management:
“If you’re trying to predict the turning point, the odds are against you.”
He reminded that after Greenspan’s warning, the Nasdaq managed to grow fivefold before it crashed.
Talks about market overvaluation have been going on for years. But now strategists are looking at profits and seeing something different. In an analyst note, Ed Yardeni pointed out that the P/E for the S&P 500 is now at 22.8. That’s high, but still below 25.0 — the level before the 1999 crash.
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Yardeni also highlighted a key difference. In the dot-com era, IT and communications companies made up 40% of the S&P 500 index, but accounted for only 23% of profits. Today, their share in the index is 44%, and their contribution to profits is already 37%. The gap has narrowed significantly, and for some analysts this is an argument that current valuations are more sustainable.
Goldman sees a chance of a sharp price surge
Gene Goldman, investment director at Cetera Financial Group, told Yahoo Finance that 2025 has been a strong year, but that doesn’t mean a crash is imminent.
“We expect a correction — maybe 3%, maybe 5%,” he said.
At the same time, he sees such dips more as buying opportunities. According to him, a full-fledged bear market shouldn’t be expected as long as there are no signs of recession in the economy, and right now the economy looks too resilient for that.
As growth factors, Goldman cited strong GDP, steady consumer spending, and large volumes of idle cash that could flow into stocks. In his view, the main risk today is not a drop, but the so-called melt-up, a sharp surge upward amid investors’ fear of “missing out.”
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With profit forecasts for 2026 and expectations of new Fed rate cuts, the stock market may remain expensive for some time. And if this really is the new norm, then as analysts note, investors should stop comparing the situation to the past and focus on the factors shaping today’s valuations.
