Key Points The S&P 500 has returned 16% this year despite shocking tariffs, but the index recently sounded an alarm last seen when the dot-com bubble burst in 2000. The S&P 500 recorded a CAPE ratio of 39.5 in October; the stock market has only been that expensive during one other period in history -- and it didn't end well. Despite the S&P 500 trading at an unsustainable valuation, Wall Street analysts expect the index to advance more than 10% in the next year. 10 stocks we like better than S&P 500 ...

But this time-tested valuation tool can be easily tripped up by shock events and recessions. If corporate profits turn into losses, the P/E ratio won't be of much help. This is where the Shiller P/E Ratio can come in handy. Note: the Shiller P/E is also commonly referred to as the cyclically adjusted P/E Ratio, or CAPE Ratio.Most investors turn to the traditional price-to-earnings (P/E) ratio as the foundation for evaluating a stock. A company's P/E ratio is arrived at by dividing its share price into its t ...

Core Viewpoint - The current high valuations in the stock market, particularly the S&P 500, are being justified by some analysts as a "new normal" due to factors like the rise of AI and historical changes in market dynamics, despite historical data suggesting that such high valuations often precede significant market declines [2][3][10][18]. Group 1: Market Valuation Trends - The S&P 500's Shiller price-to-earnings (P/E) ratio has reached levels not seen in over 150 years, indicating that the current stock market is the second-priciest in this timeframe [4][6][13]. - Analysts like Savita Subramanian from Bank of America argue that current multiples should be considered the new normal rather than reverting to historical averages [3][5]. - The Shiller P/E ratio has historically indicated that readings above 30 are unsustainable and have led to declines in major indexes ranging from 20% to 89% in the past [14][15][17]. Group 2: Historical Context and Market Dynamics - The rise of the internet in the mid-1990s began a shift in market dynamics, breaking down information barriers and contributing to a new valuation norm [7][8][10]. - Lower interest rates from 1990 through the 2010s have made capital cheaper, encouraging borrowing for growth, which has also influenced stock valuations [9][10]. - The current market's high valuations are not solely due to AI advancements; they are part of a broader trend that has been developing for decades [10][18]. Group 3: Potential Risks and Market Behavior - Despite the optimism surrounding AI, many companies are not yet realizing returns on their AI investments, suggesting a potential bubble [18]. - Historical patterns show that every major technological trend over the last 30 years has faced a bubble-bursting event, indicating that current high valuations may not be sustainable [16][18]. - The ongoing instance of the Shiller P/E exceeding 40 during the current bull market raises concerns about future market corrections [17].

The Oracle of Omaha's actions speak louder than his words.For 60 years, Berkshire Hathaway (BRK.A 0.10%) (BRK.B -0.27%) CEO Warren Buffett has been dazzling Wall Street and investors with his ability to spot amazing deals hiding in plain sight. Since taking the reins, he's overseen a nearly 6,000,000% cumulative gain in his company's Class A shares (BRK.A).But this glorious investment career is in its twilight. During Berkshire's annual shareholder meeting in early May, Buffett announced his intent to retir ...

Two closely watched historical valuation metrics are making history in all the wrong ways.Investors have been taken on quite the ride in 2025, but have been handsomely rewarded for their patience.Shortly after President Donald Trump announced his tariff and trade policy on April 2, the broad-based S&P 500 (^GSPC -0.55%), widely followed Dow Jones Industrial Average (^DJI -0.19%), and growth-dominated Nasdaq Composite (^IXIC -0.95%) plummeted. The S&P 500 endured its fifth-steepest two-day percentage decline ...

Core Viewpoint - Warren Buffett, CEO of Berkshire Hathaway, has been a net seller of stocks for 11 consecutive quarters, raising concerns about the current market valuation and investment opportunities [4][9][10]. Group 1: Berkshire Hathaway's Recent Performance - In the second quarter, Berkshire Hathaway reported a cash flow statement indicating $3.909 billion spent on stock purchases, an increase from $3.183 billion in the previous quarter, while $6.915 billion was sold, up from $4.677 billion [8]. - Over the past 11 quarters, Buffett has sold $177.431 billion more in stocks than purchased, signaling a significant warning to Wall Street about market conditions [9]. - The company's cash reserves have grown to over $344 billion, but there is little incentive to deploy this capital in a historically expensive stock market [16][18]. Group 2: Market Valuation Concerns - The market-cap-to-GDP ratio, known as the "Buffett Indicator," recently exceeded 210%, significantly above the historical average of 85% [11]. - The S&P 500's Shiller price-to-earnings (P/E) ratio reached 38.97, marking it as one of the priciest bull markets in history, with previous instances leading to declines of at least 20% [15]. - The current market conditions make it challenging for Buffett to find value, as price dislocations in quality businesses are rare in an overpriced market [10][22]. Group 3: Investment Philosophy and Strategy - Buffett's investment strategy emphasizes patience, often waiting for favorable price dislocations before making significant investments [19][22]. - Historical examples, such as the $5 billion investment in Bank of America in 2011, illustrate Buffett's approach of capitalizing on undervalued opportunities when they arise [20][21]. - The upcoming transition of leadership to Greg Abel may see a continuation of this patient investment philosophy, crucial for Berkshire Hathaway's long-term success [22].

Market Overview - The stock market has experienced a downturn, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite losing 5.9%, 7.8%, and 11.3% respectively between February 19 and March 21 [1][2] - The Nasdaq Composite's decline has placed it in correction territory, prompting considerations for bargain hunting despite a historically pricey market [2] Valuation Concerns - Valuation remains a significant concern for the stock market, with the Shiller price-to-earnings (P/E) Ratio for the S&P 500 reaching 35.28, more than double its historical average of 17.22 since January 1871 [7][5] - Historical data indicates that when the Shiller P/E exceeds 30, it has often been followed by declines of at least 20% in the S&P 500 [8][9] Company Spotlight: PubMatic - PubMatic is a cloud-based programmatic ad platform focused on digital advertising, including video, mobile, and connected TV [11] - The company faced a temporary setback due to its first-quarter guidance and full-year outlook not meeting analyst expectations, primarily influenced by changes in Google's bidding algorithm [12][13] - Despite this, PubMatic's digital ad segments, particularly connected TV (CTV), are experiencing significant growth, with CTV revenue more than doubling year-over-year and accounting for 20% of total sales [14] Financial Strength - PubMatic has maintained positive cash flow from operations for 10 consecutive years, ending 2024 with $140.6 million in cash and no debt, equating to nearly $3 per share in cash [16] - The company has actively repurchased stock, reducing its outstanding share count by over 8% since initiating buybacks two years ago, which positively impacts earnings per share (EPS) [17] Investment Appeal - PubMatic is currently valued at 12.7 times forward-year EPS, or below 9 when excluding its cash position, presenting an attractive investment opportunity given its potential for sustained double-digit growth [18]