Even at an All-Time High, The Vanguard S&P 500 ETF Isn't as Expensive as It Seems

Core Viewpoint - The elevated valuation of the S&P 500 is supported by logical factors, suggesting that it may still represent a good investment opportunity despite its all-time high levels [2][14]. Valuation Analysis - The Vanguard S&P 500 ETF is the largest S&P 500 fund with over $1.5 trillion in assets and has seen an 8.5% increase year-to-date and a 66.4% increase since the start of 2023 [1][2]. - The S&P 500's price appreciation has outpaced its operating earnings per share (EPS), leading to an expanded valuation, with the index rising 10.7% over the past year compared to a 3.5% increase in operating EPS [6][4]. - The forward price-to-earnings (P/E) ratio of the S&P 500 is currently 22.2, which is a 20% premium over its 10-year average of 18.5, indicating a perception of overvaluation [8]. Factors Supporting Valuation Expansion - Increased efficiency in business operations due to technological advancements, such as the internet and AI, is expected to enhance company performance and justify higher valuations over time [9][10]. - The growing proportion of growth-focused companies within the S&P 500 is likely to contribute to a natural rise in the index's valuation as these companies reinvest profits for future growth [11]. Market Dynamics - The current market environment, characterized by growth-driven companies, has improved the quality of S&P 500 earnings and projected growth rates, although it may also lead to increased market volatility [13]. - The S&P 500 is argued to deserve a higher valuation than historical averages, suggesting that ETFs tracking the index may not be as overvalued as they appear [14].