Key Points
-
The S&P 500 trades at what appears to be an expensive valuation, and the data doesn’t bode well for returns going forward.
-
It’s important to understand valuation, but it’s also critical to remain optimistic in the long run.
The S&P 500 index (SNPINDEX: ^GSPC) continues to prove the bears wrong. The benchmark’s level has risen 8% in April (as of April 22). And it has produced a total return of 300% in the past decade.
After such a phenomenal performance that’s significantly better than its average historical return of 10%, investors might consider being cautious. The stock market just did something it hasn’t done since the dot-com bubble period of 1999.
Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue »
History provides a clear answer as to what might happen next.
Person holding a warning sign that says, “attention please!”
Image source: Getty Images.
According to the CAPE ratio of 40.1, the S&P 500 is extremely expensive these days. The last time this popular valuation metric was this high was in 1999, before this century even started.
Research conducted by Invesco, which analyzes the relationship between starting CAPE ratios and forward returns, reveals a possibly bleak future. When the CAPE ratio is this high, the S&P 500’s annualized gains over the following 10 years can be negative.
Before you rush to sell your entire portfolio, it’s worth thinking about the bullish case. The market’s powerful tailwinds, like major contribution from dominant technology enterprises, huge capital inflows from passive investors, and ongoing currency debasement, will keep propelling it for the foreseeable future.
While it’s always a smart move to keep valuation in mind, it’s also important to be optimistic about the long term.
Should you buy stock in S&P 500 Index right now?
Before you buy stock in S&P 500 Index, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and S&P 500 Index wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $498,522!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,276,807!*
Now, it’s worth noting Stock Advisor’s total average return is 983% — a market-crushing outperformance compared to 200% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
*Stock Advisor returns as of April 26, 2026.
Neil Patel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.