Why the S&P 500 May Be Cheaper Than It Looks

The S&P 500 is still within striking distance of its August 13 record, but the market’s valuation has moved in the opposite direction. The index closed at 7,620.25 on September 14, below its 7,798.99 peak, while forward earnings estimates have climbed sharply.

That gap is the central argument from strategists who say stocks may not be as expensive as the headline index level suggests. LPL Financial analysts said the S&P 500’s price-to-earnings ratio has fallen 11% since the start of 2026, implying that corporate profits have grown faster than share prices. Goldman Sachs put the forward multiple at roughly 19 times earnings, down from 22 times at the beginning of the year.

The earnings side of the equation has been unusually forceful. J.P. Morgan said S&P 500 revenue rose 16% year over year in the latest reporting season, while earnings growth approached 52%, or about 32% after adjusting for unusual gains at two large index constituents. Eighty-six percent of companies beat earnings-per-share expectations, and all 11 sectors posted revenue growth. That breadth matters. It suggests the rally is no longer resting solely on a handful of mega-cap technology names.

Artificial intelligence remains the market’s main engine, with semiconductor, networking and cloud companies benefiting from a capital-spending surge. J.P. Morgan expects spending by the largest technology companies to exceed $1 trillion in 2027. Nvidia, Microsoft, Amazon and Alphabet sit near the center of that investment cycle, but their future returns now depend on whether customers can turn enormous computing budgets into measurable productivity and profits.

There is a catch. A 19-times forward multiple is lower, not low, by long-run standards, and bonds have become a more formidable alternative. The 10-year Treasury yield recently approached 5%, while Goldman said the S&P 500’s earnings yield spread over real Treasury yields remains broadly unchanged. Higher rates also make distant growth cash flows less valuable, particularly for companies whose profitability is still mostly a forecast.

The bullish case is therefore conditional rather than carefree: earnings must keep outrunning prices, and AI spending must begin producing returns beyond the infrastructure suppliers. So far, profits have done the heavy lifting. That has allowed stocks to climb while valuation pressure quietly leaks out of the index.