What to make of the S&P 500’s soaring valuation

The S&P 500 remains within a whisker of its all-time high, despite faltering a bit today. Although much of its gain since spring 2020 has reflected growth in earnings, its valuation has also risen sharply and in cyclically adjusted terms is nearly as high now as it was at the height of dot com mania. While that might ring alarm bells, we don’t expect the return from it to be as bad in the next decade as it was in the 2000s.