Overview

• The S&P 500 trades around a price-to-earnings ratio of 22.5 versus a long-run average near 16.5, with other valuation measures also elevated.
• JPMorgan Asset Management’s historical analysis links high starting valuations to low single-digit annual returns over multi-year horizons, despite weak one-year correlations.
• Because U.S. stocks make up more than 70% of the MSCI World, portfolios tied to that index are highly concentrated in expensive large caps.
• Commentators recommend rebalancing toward cheaper areas such as small caps, Europe and emerging markets, while noting that small caps typically swing more and fall harder in downturns.
• The valuation excess is most pronounced in technology shares and outcomes could differ if forces like AI-driven productivity or inflation dynamics reshape the cycle, so a complete exit from U.S. exposure is not advised.