According to Yardeni Research, the index’s price-to-earnings multiple recently hit 22.3, marking a 45.8% surge since its October 2022 low of 15.3, bolstered in part by a 15.5% jump in the forward earnings per share .“If valuations expand much more, we might have to raise our subjective odds of a meltup scenario from the current 25%,” warns Yardeni Research.
As recession fears from 2022 gradually eased over the past three years, investors grew more confident in the economy's resilience and earnings growth, driving a sharp rise in valuation multiples despite ongoing monetary tightening. However, some valuation metrics are less alarming. For instance, the Fed’s Stock Valuation Model, which compares the forward earnings yield to theLastly, the spread between the S&P 500 earnings yield and CPI inflation, another valuation gauge, is usually negative during recessions and bear markets but has remained slightly positive over the last six quarters.