Also, President Trump’s dominance of AI; cryptocurrency in the first week of his second term; his change-of-mind about tax deductions; and other personal-finance coverage.
Referenced Symbols
-
SPX
-1.46% -
SPY
-1.41% -
NVDA
-16.97% -
AAPL
+3.18% -
MSFT
-2.14% -
AMZN
+0.24% -
META
+1.91% -
GOOGL
-4.20% -
GOOG
-4.03% -
TSLA
-2.32% -
9984
-5.22% -
ORCL
-13.79% -
BTCUSD
+1.38% -
TRUMPUSD
+8.70% -
DAL
+0.88% -
LUV
+1.27% -
UAL
+1.66% -
MID
-1.10% -
SML
-0.34% -
NFLX
-0.58%
JPMorgan Chase & Co. Chief Executive Jamie Dimon said this week that asset prices, including stocks, were “kind of inflated, by any measure,” during a CNBC interview at the World Economic Forum in Davos, Switzerland.
The S&P 500
SPX
trades at a forward price-to-earnings ratio of 22.2, which is up from 20 a year ago. These figures are based on closing stock prices on Thursday and consensus earnings-per-share estimates among analysts polled by FactSet — all weighted by market capitalization. On this basis, the S&P 500 trades 20% higher than its 10-year average P/E of 18.5 and 38% higher than its 20-year average forward P/E of 16.1.
How important is that weighting by market cap? A quick look at the SPDR S&P 500 ETF Trust
SPY
, which tracks the S&P 500 by holding all the stocks in the index, shows the “Magnificent Seven” group of companies making up 33% of the exchange-traded fund’s portfolio. The group consists of Nvidia Corp.
NVDA
, Apple Inc.
AAPL
, Microsoft Corp.
MSFT
, Amazon.com Inc.
AMZN
, Meta Platforms Inc.
META
, Alphabet Inc.
GOOGL
GOOG
and Tesla Inc.
TSLA
.
Here’s a breakdown of the SPY portfolio’s largest 10 holdings, with their forward P/E ratios, along with forward price-to-sales ratios and projected compound annual growth rates (CAGR) for revenue and earnings from 2024 through 2026. There are actually 11 stocks listed, because the S&P 500 includes Alphabet’s Class A and Class C shares.
| Company | Ticker | % of SPY portfolio | Forward P/E | Two-year estimated sales CAGR through 2026 | Two-year estimated EPS CAGR through 2026 |
| Nvidia Corp. |
NVDA -16.97%
|
7.0% | 33.3 | 38.5% | 38.0% |
| Apple Inc. |
AAPL +3.18%
|
6.5% | 29.3 | 6.6% | 14.7% |
| Microsoft Corp. |
MSFT -2.14%
|
6.4% | 31.4 | 14.4% | 15.1% |
| Amazon.com Inc. |
AMZN +0.24%
|
4.2% | 37.0 | 10.7% | 22.5% |
| Meta Platforms Inc. |
META +1.91%
|
2.7% | 24.9 | 13.5% | 12.6% |
| Alphabet Inc. Class A |
GOOGL -4.20%
|
2.2% | 21.8 | 11.5% | 13.2% |
| Tesla Inc. |
TSLA -2.32%
|
2.2% | 122.6 | 18.0% | 30.7% |
| Broadcom Inc. |
AVGO -17.40%
|
2.2% | 36.0 | 16.5% | 24.1% |
| Alphabet Inc. Class C |
GOOG -4.03%
|
1.8% | 22.0 | 11.5% | 13.2% |
| Berkshire Hathaway Inc. Class B |
BRK.B +2.48%
|
1.6% | 22.8 | 2.7% | 3.3% |
| JPMorgan Chase & Co. |
JPM +0.38%
|
1.4% | 14.2 | 2.7% | 3.3% |
| S&P 500 |
SPX -1.46%
|
22.2 | 6.0% | 14.2% | |
| Source: FactSet | |||||
Calendar-year estimates have been used for the growth projections, as adjusted by FactSet for companies whose fiscal reporting periods don’t match the calendar.
Among the largest 10 components of the S&P 500, all except Alphabet trade at higher P/E ratios than the full S&P 500. All except Apple and JPMorgan Chase
JPM
are expected to increase revenue faster than the weighted index through 2026. All except Meta Platforms, Alphabet, Berkshire Hathaway
BRK.B
and JPMorgan Chase are expected to increase EPS at a more rapid pace than the index.
So the index rewards success, but having 33% of your index-fund investment in only seven companies might magnify a stock-market downturn, which won’t be fun to wait through.
We cannot predict when the stock market will enter a period of decline, but some investors’ memories may be short. The S&P 500’s total return was 58% for two years through 2024. But in 2022 the index fell 18.1%. So its return from the end of 2021 through 2024 was 29.3%. All investment returns in this article include reinvested dividends.
More on the Magnificent Seven:
- Bond investors are trimming ‘Magnificent Seven’ holdings — with one exception
- Tesla’s ‘Trump bump’ fades as stock falls alongside rest of EV sector
A bear-market warning: Foreigners are chasing U.S. stocks. Historically, that’s a bad sign.
Another expensive tech stock: Palantir’s stock can hit $90, says the only analyst whose price target implies upside
Bull-market hope: Trump must deliver ‘tangible progress’ in first 100 days for stock market to rally
Which overlooked sectors of the S&P 500 might be bargains?
Isabel Wang looked at the history of the S&P 500’s valuation, broke down current P/E for all of its sectors and highlighted a bargain opportunity underscored by President Trump’s second-term agenda.
Two value-oriented stock screens:
