S&P 500’s High Valuation Is Concentrated in Mega-Caps

The S&P 500 trades at about 21 times earnings, but the average stock in the index is closer to 17 times, Hennessy portfolio manager Josh Wein said in a September 22 interview. He put mid-cap stocks at roughly 16 to 16.5 times earnings, arguing that the index’s valuation looks more stretched than many of its constituents.

The gap reflects how the S&P 500 is built. It weights companies by market value, so the biggest stocks, including Nvidia and Microsoft, carry far more influence than smaller members. When those giants command higher valuations, they can lift the index’s overall multiple even if many other stocks trade at lower levels.

That concentration is substantial. S&P Dow Jones Indices reported that the S&P 500’s 10 largest companies made up almost 40% of the index by mid-2025, a share it said had not been seen since the mid-1960s. The figure helps explain why the headline index can give a different valuation picture from the typical constituent.

Wein said investors are paying a premium for the liquidity of mega-cap shares. Those companies can attract heavy trading and large investment flows, but their weight also means a change in their prices can have an outsized effect on the benchmark.

The lower multiples outside the biggest companies may look more manageable, but they do not make every mid-cap a bargain. A price-to-earnings ratio compares a company’s share price with its earnings; it does not show whether earnings will hold up or grow. Wein’s comments point to a valuation gap, not a guarantee of better returns.

Interest rates are another part of the comparison. Wein described mid-caps’ earnings yield, the inverse of the price-to-earnings ratio, as roughly 6%. He viewed that as a fair return relative to what investors could earn on 10-year Treasuries, while acknowledging the market’s rate backdrop.

For investors, the issue is whether they are judging the whole market by a few heavily weighted names. Watch whether earnings growth spreads beyond the largest companies, and whether mid-cap prices confirm the case that lower valuations offer an opportunity.