Valuation Angst Shifts From Big Tech to Rest of S&P 500

Core Insights - Concerns are rising that the S&P 500's continuous record highs may indicate a bubble, primarily due to its inflated valuation [1] - The technology sector has significantly influenced the S&P 500's gains, with five major tech firms accounting for half of the index's 12% increase [1] - Despite the tech sector's high valuations, their profit growth has largely justified these valuations, contrasting with other sectors showing weaker earnings growth [1][2] Valuation and Earnings Growth - The S&P 500 index excluding technology has increased by 13% over the past year, while profits in this segment have only grown by 6.4% [2] - The S&P 500 Information Technology index has surged by 27%, closely aligned with the sector's earnings growth of 26.9% [2] - The overall S&P 500 trades at over 27 times forward earnings, a level typically seen during extreme bullish periods [4] Sector Performance - The materials sector has risen by 9% this year, but earnings have declined by 13%, exemplified by Dow Inc. trading at 914 times earnings, the highest in the S&P 500 [3] - Speculation appears to be more prevalent in non-tech sectors rather than in technology stocks [4] Tech Giants' Performance - The "Magnificent 7" tech giants, including Nvidia, Microsoft, Meta, and Alphabet, have seen their P/E ratio decrease by 7.9% in 2025, despite an 18% increase in share prices [5] - This group's P/E ratio stands at 43, which, while elevated, is supported by profit growth forecasts of 20% over the next 12 months [5] - A broader analysis of tech and tech-heavy stocks shows a 15% increase in share prices this year, matching the 15% growth in earnings per share [6]