1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 21
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
Elevated valuations suggest material multiple expansion could be hard to come by, a key risk
in an overly concentrated market
Valuations are undeniably stretched, much like they were in the dotcom era, leaving more
downside risk than upside potential for multiples. This is not just the case for the U.S. market; the
12-month forward price-to-earnings multiple of the S&P/TSX Composite and the MSCI ACWI ex.
U.S. Index are trading 8-9% above their 10-year historical average as of 2025-end. Still, much of
the valuation excess is observed in the U.S. where the 12-month forward price-to-earnings
multiple is sitting 1 standard deviation above its long-term average.
S&P 500 valuations are well above their 10-year historical average
28
12-mth fwd P/E
24
20
16
12
2015
2018
S&P 500
2021
+1 std.dev
2024
-1 std.dev
10-yr avg
Source: Bloomberg Finance LP, Scotia Wealth Management
It is worth highlighting that the top-heavy nature of the index is a key driver behind this. The top
10 U.S. stocks currently account for ~40% of the S&P 500’s market capitalization. In other words,
2% of stocks in a 500-stock index make up two-fifths of the benchmark’s market capitalization,
exerting an outsized influence on broader performance.
Concentration risk is amplified, with the top 10 stocks accounting for ~40% of the S&P 500
index
46%
39%
40%
34%
28%
22%
16%
10%
1990
1995
2000
2005
Weight of top 10 S&P 500 stocks
2010
2015
Median
2020
2025
Current
Source: Bloomberg Finance LP, Scotia Wealth Management
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