The S&P 500 is 155% Overvalued: Is a Lost Decade Coming?

[00:00:01][music] >> Hi everyone. Welcome to the next installment of Charts and Perspective, where we use charts to dive into the world of economics and financial markets. I'm Jennifer Nash, an economic and market research analyst for TMX VettaFi.

[00:00:20]Look at the stock market right now, and it may feel like whiplash. We're seeing daily volatility, yet somehow the indexes are still hovering right near all-time highs.

[00:00:30]It's confusing. It's exhausting. And it leaves a lot of investors wondering what's actually going on under the hood.

[00:00:37]Today, we're updating our monthly market valuation toolkit for June 2026.

[00:00:43]And if we strip away the daily noise and look at the actual math, the picture's clear.

[00:00:48]By almost every historical metric we track, the S&P 500 isn't just expensive.

[00:00:54]It's sitting in one of the most aggressively overvalued territories we've ever seen.

[00:00:59]Let's fast forward straight to the headline.

[00:01:02]When we take our four core market value indicators and average them out, the S&P 500 is currently overvalued by a staggering 155%.

[00:01:11]That makes this the second highest level in history. Even wilder, for 12 straight months, this average has hovered more than three standard deviations above its historical mean.

[00:01:22]In plain English, we are flying way out in the statistical stratosphere. So, how exactly do we calculate this?

[00:01:30]We don't just rely on one single metric.

[00:01:32]We look at four distinct, historically proven lenses.

[00:01:36]First, the Crestmont PE ratio. Second, the cyclical PE ratio, which uses trailing 10-year earnings.

[00:01:44]You might know this as the Shiller PE or CAPE ratio.

[00:01:48]Third, the Q ratio, which measures the total price of the market divided by what it would actually cost to replace all those assets. And fourth, the relationship of the S&P composite price to its long-term exponential regression trend line. Right now, depending on which of these four you look at, the market is overvalued by anywhere from 116% to 207%.

[00:02:11]There's simply nowhere to hide. Now, for the data purists out there, we also run an alternative view using the geometric mean instead of the standard arithmetic average. Why do this? Because the geometric mean is much more sensitive to extreme outliers. And look at what happens when we switch these lenses.

[00:02:28]The range of overvaluation tightens and pushes even higher, shifting to between 142% and 207%.

[00:02:37]The geometric average itself sits at 175%.

[00:02:41]Marking its 14th consecutive month more than three standard deviations above the mean. No matter how you slice the math, the conclusion remains identical. When markets stay this high for this long, investors fall into a psychological trap called extrapolation bias. We start believing that because the market hasn't crashed yet, it never will.

[00:03:02]History shows us this exact sentiment peaked right before the 2000.com crash and the 1929 crash.

[00:03:10]When you're three standard deviations above the norm, the risk isn't necessarily a sudden, violent crash tomorrow.

[00:03:17]It is the reality of a lost decade where long-term returns flatline while the fundamentals slowly catch up to the prices. These valuation indicators are not short-term timing signals. They cannot tell you what the market will do next week, next month, or even next year.

[00:03:34]Highly overvalued markets can stay irrational and keep climbing for years.

[00:03:39]Instead, what this data does is frame your long-term return expectations.

[00:03:45]That's all for our discussion. Thank you for tuning in. For more economic and market insights, you can find my content on the Advisor Perspectives website under the AP Charts section.