Expensive but not in a bubble

Once you exclude the 7 biggest Megacap Tech Stocks in the S&P 500, the forward Price-to-earnings of the S&P 500 falls from 18.8 to 16.4 times. This is still expensive compared to history but by far less extreme than the S&P 500 as a whole. To put matters in perspective, the European stock market trades at 13 times earnings. We conclude that once you exclude the extreme case of the megacap tech stocks, equity markets overall are expensive from a valuation perspective but not yet in bubble territory. Selectivity will remain key in such an environment.