The S&P 500 (SPX) secured a new intraday record high of 6,847 on Wednesday, shrugging off bubble fears and an AI warning from OpenAI CEO Sam Altman. Last week, Altman warned of a bubble within the AI industry and periods of “irrational exuberance,” cautioning that some investors could face severe losses.
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In addition, a record 91% of institutional investors polled by the Bank of America Global Fund Survey said that U.S. equities are in overvalued territory.
Is an Elevated S&P 500 P/E Ratio Concerning?
Bears, or investors who believe that the market will go down, argue that traditional valuation metrics, like the price-to-earnings (P/E) ratio, are higher than historical averages. Going back to 1971, the P/E ratio is almost one standard deviation higher than the mean.
At the same time, the S&P 500 today is much different than it was 50 years ago. High-margin technology companies with vast growth potential dominate the index instead of oil and manufacturing giants. Furthermore, the financial landscape has evolved, with the addition of more safeguards and regulations.
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