Back to ( more ) normal

Two months ago, the debate around US equities was dominated by stretched valuations and seemingly unstoppable momentum in AI and semiconductor stocks. Since then, the headline indices have remained remarkably resilient, with the S&P 500 still close to its June record. Beneath the surface, however, the picture has changed materially: the Philadelphia Semiconductor Index has fallen by more than 20% from its late-June peak, and several of the market’s former leaders have corrected sharply.

This adjustment, combined with continued earnings growth, has brought valuations closer to more normal levels—although certainly not to cheap ones. The S&P 500 trades at around 20 times forward earnings and the Nasdaq 100 at 23 times, compared with approximately 16 times for both the equal-weighted S&P 500 and the S&P MidCap 400.

The market is therefore not uniformly expensive. The remaining valuation premium is concentrated in its largest companies. Two months ago, the principal concern was excessive multiples. Today, it increasingly looks like an earnings bubble: current valuations can be justified, but only if the market’s most prominent companies continue to deliver exceptional growth.