The S&P 500 (SNPINDEX: ^GSPC) has experienced one of the strongest bull markets in history during the past few years. The index produced total returns of 26%, 25%, and 18% in 2023, 2024, and 2025, respectively, and it’s posted another 7.8% gain year to date (as of June 12). And that rally follows a strong performance ever since the market bottomed in March 2009.
But as the benchmark index sits near its recent all-time high, investors may be growing increasingly concerned about valuation. For example, the S&P 500’s Shiller price-to-earnings (P/E) ratio currently sits at more than 41, a level it hasn’t seen outside of the dot-com bubble. Meanwhile, the price-to-book and price-to-sales ratios of the index are sitting at all-time highs.
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Warren Buffett‘s favorite valuation measure is comparing the market capitalization of the stock market to gross domestic product (GDP). The S&P 500’s market cap currently is double the trailing-12-month GDP, the highest level since 1929. And if you adjust that ratio for prevailing Treasury bond yields, the S&P 500 is trading at its highest premium in more than 100 years, dating back to 1920, according to CME Group data.
Although that might concern some investors, a couple of key factors in today’s market should provide some comfort.
The biggest indication that stocks can keep climbing
Despite high stock valuations, there are some encouraging market trends that could suggest the bull market can continue for several more years, according to CME analysts led by Erik Norland.
First and foremost is corporate earnings. Although the Shiller P/E ratio has climbed to a very high level, it’s important to understand how to calculate that ratio. It takes the earnings of each S&P 500 component during the past 10 years and adjusts each for inflation. It then averages the inflation-adjusted results and divides the current market price by that average.
That makes the Shiller P/E a backward-looking metric. And although it typically does a good job of estimating forward returns, a company’s value is more closely tied to its future earnings power.
To that end, corporate earnings are soaring, with the S&P 500 reporting aggregate earnings growth of 28.6% in the first quarter. Analysts are projecting full-year earnings growth of 22.8%, well above the historic single-digit percentage average.
