{"id":501163,"date":"2026-06-19T16:51:11","date_gmt":"2026-06-19T16:51:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/il\/501163\/"},"modified":"2026-06-19T16:51:11","modified_gmt":"2026-06-19T16:51:11","slug":"elevated-sp-500-valuations-could-signal-final-stage-of-ai-driven-market-rally","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/il\/501163\/","title":{"rendered":"Elevated S&P 500 Valuations Could Signal Final Stage of AI-Driven Market Rally"},"content":{"rendered":"

\"Stock Stock chart with green arrow moving up \u00a9Adobe Stock Images <\/p>\n

The sharp rise in U.S. equity valuations may indicate that the artificial intelligence-fueled bull market is entering its most speculative phase, according to Capital Economics.<\/p>\n

In a note published Tuesday, Chief Economic Adviser John Higgins highlighted that the S&P 500\u2019s cyclically adjusted price-to-earnings ratio (CAPE) has climbed more than 12 points since the beginning of 2023 and now sits above 40.<\/p>\n

According to Higgins, the measure has reached \u201ca level last seen before the dotcom bubble burst.\u201d<\/p>\n

Valuation Expansion Driving Much of the Market\u2019s Gains <\/p>\n

Capital Economics estimates that valuation expansion, rather than earnings growth alone, has been responsible for a significant portion of the S&P 500\u2019s advance since early 2023, which the firm views as the starting point of the current AI-driven rally.<\/p>\n

The CAPE ratio has accounted for more than two-thirds of the index\u2019s gains over that period.<\/p>\n

Higgins said this development is \u201cone sign that we may be in the \u2018blow-off\u2019 phase of the AI-fuelled rally.\u201d<\/p>\n

Traditional Valuation Measures Paint a Less Extreme Picture <\/p>\n

While the CAPE ratio points to stretched valuations, other metrics appear less alarming.<\/p>\n

The S&P 500\u2019s forward 12-month price-to-earnings ratio has increased by fewer than four points since the start of the rally and currently stands at roughly 21.<\/p>\n

That remains below the levels reached during the dotcom era, when the measure exceeded 24.<\/p>\n

Similarly, the forward three-year earnings multiple has contributed only a modest portion of the market\u2019s advance and currently sits near 17, compared with a peak above 22 during the technology bubble.<\/p>\n

Concerns Remain Over Sustainability of Earnings Growth <\/p>\n

Despite the more moderate signals from traditional valuation measures, Capital Economics continues to place greater emphasis on the CAPE ratio.<\/p>\n

The firm cited three key reasons for its caution: doubts about the durability of recent earnings-per-share growth, elevated technology-related capital expenditures relative to GDP, and a near-record ratio of stock market value to net worth among U.S. non-financial corporations.<\/p>\n

These factors suggest that current valuations may be vulnerable if expectations for future growth begin to weaken.<\/p>\n

Long-Term Return Outlook Appears Less Attractive <\/p>\n

Higgins also pointed to the excess CAPE yield, a metric that compares prospective equity returns with Treasury yields and has historically served as a useful guide for long-term market performance.<\/p>\n

Based on current readings, the indicator suggests investors may face below-average excess returns from equities relative to government bonds over the coming decade.<\/p>\n","protected":false},"excerpt":{"rendered":"Stock chart with green arrow moving up \u00a9Adobe Stock Images The sharp rise in U.S. equity valuations may…\n","protected":false},"author":2,"featured_media":501164,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[114,135496,4776,85,46,230416,1010],"class_list":["post-501163","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-business","tag-capital-economics","tag-earnings-growth","tag-il","tag-israel","tag-john-higgins","tag-sp-500"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/501163","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=501163"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/501163\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/501164"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=501163"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=501163"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=501163"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}