Strategists are questioning what counts as 'normal' in today's market. Are high stock multiples here to stay? Let's dive into the S&P 500's valuations and the factors driving the 'new normal'.

S&P 500 Valuations: Is This the New Normal?
The S&P 500 is flirting with levels not seen since the dot-com era, and Wall Street isn't necessarily hitting the panic button. Instead, they're asking a fundamental question: What even is 'normal' anymore?
Embracing Expensive: A Shift in Perspective
Forget those valuation metrics that used to scream 'danger!' Now, some strategists are suggesting we embrace these high multiples as the new baseline. Bank of America's Savita Subramanian even suggested anchoring to today's multiples rather than expecting a return to the past.
The Tech Giant Effect
The rise of tech giants significantly impacts the S&P 500's valuation. CFRA Research's Sam Stovall points out that the S&P 500 trades at a 40% premium to its long-term forward average. However, when measured over the last five years – coinciding with the dominance of tech giants – that gap shrinks considerably.
Powell's Caution vs. Strategist Pushback
Even the Fed is keeping an eye on things. Jerome Powell recently noted that markets look “fairly highly valued,” drawing comparisons to Alan Greenspan's famous “irrational exuberance” speech. But most strategists aren't convinced we're in a bubble. As iCapital's Sonali Basak wisely advises, don't try to time the top!
Dot-Com Deja Vu? Not Quite.
Veteran market analyst Ed Yardeni highlights a crucial difference between now and the dot-com era. While the S&P 500's forward price-to-earnings ratio is high, the gap between tech's contribution to the index's value versus its contribution to earnings has narrowed significantly. Today, tech and communication services contribute a larger share of earnings relative to their overall value in the index.
The Melt-Up Risk
Forget a crash, Cetera Financial Group's Gene Goldman suggests the real risk is a melt-up – a surge driven by fear of missing out (FOMO). Strong GDP growth, resilient consumer spending, and piles of cash on the sidelines could fuel further gains.
Looking Ahead: Trading S&P 500 with Crypto
Adding an interesting layer to this discussion is the recent filing by Cyber Hornet for an ETF combining the S&P 500 with cryptocurrencies like XRP, Ethereum, and Solana. Imagine tracking the S&P 500 alongside the performance of digital assets. This innovative approach underscores the evolving relationship between traditional finance and the crypto world.
The Takeaway
The S&P 500's valuations might seem lofty, but strategists are increasingly accepting this as the new normal. The key is understanding what's driving these valuations, rather than simply comparing them to historical averages. Keep an eye on earnings, economic indicators, and maybe even the performance of those crypto-infused ETFs!
So, should you be worried? Maybe a little. But remember, the market rarely does what everyone expects. Buckle up, stay informed, and maybe diversify your portfolio with a dash of crypto – just for kicks!