As the S&P 500 trades near record highs, with valuations approaching levels last seen during the dot-com bubble, Wall Street strategists are rethinking what constitutes “normal” for today’s market.
In a recent client note, Bank of America equity strategist Savita Subramanian suggested that the market should anchor to today’s multiples as the “new normal” rather than expecting a mean reversion to a bygone era.This shift in perspective reflects a broader recalibration on Wall Street, driven primarily by accelerating artificial intelligence adoption and resilient earnings growth.
Sam Stovall, chief investment strategist at CFRA Research, noted that while valuations remain elevated compared to long-term averages, they appear more justifiable when measured against the past five years—a period marked by mega-cap tech leadership and strong fundamentals. He explained that while the S&P 500 is trading at a roughly 40% premium to its 20-year average, that premium shrinks to a high-single-digit range when compared to the last five years.
The discussion has extended beyond Wall Street research desks to the broader investor community. Federal Reserve Chair Jerome Powell recently acknowledged that markets appear “fairly highly valued,” drawing comparisons to former Fed Chair Alan Greenspan’s famous 1996 “irrational exuberance” speech—delivered more than three years before the dot-com bubble finally burst.
Sonali Basak, chief investment strategist at iCapital, highlighted the parallel in a social media post, sharing a warning from Barry Ritholtz, CIO at Ritholtz Wealth Management, who noted that trying to time the market top can be a costly mistake. Basak pointed out that after Greenspan’s warning, “the market ended up rallying for years,” and investors who stayed sidelined missed a fivefold rally in the Nasdaq before the eventual crash.
Historical context is shaping the current narrative as strategists weigh high multiples against solid growth, robust earnings, and record levels of sidelined cash.
Veteran analyst Ed Yardeni observed that while the S&P 500’s forward P/E ratio sits near 22.8—just below the 25.0 peak before the 1999 tech bust—corporate earnings have largely kept pace with prices. A key differentiator: during the late-1990s bubble, Technology and Communication Services stocks accounted for about 40% of the S&P 500’s market cap but contributed only 23% of earnings. Today, these sectors represent a record 44% of market value and deliver 37% of the index’s earnings.
The prevailing view on Wall Street is that while valuations appear stretched, the current setup doesn’t signal a bubble.
Gene Goldman, chief investment officer at Cetera Financial Group, described 2025 as “phenomenal” for markets and acknowledged the likelihood of a 3-5% pullback. However, he emphasized that “any pullback is a buy-the-dip opportunity,” citing strong GDP growth, resilient consumer spending, and ample sidelined cash as key equity supports. “We don’t see a bear market because you need a recession to have a bear market,” Goldman stated. “The economy looks pretty good.”
In his view, the greater risk may be a “melt-up”—not a meltdown—as investors chase performance into year-end. He added that stocks could remain elevated given strong 2026 earnings expectations and broadening market participation fueled by Fed rate cuts.
