US markets sold off sharply last Friday. The S&P 500 dropped over 2%, the Nasdaq nearly 5%. It brought back a question worth answering honestly: how expensive are US stocks right now? Here's what the PE ratio data shows across the three major indices, the Magnificent Five, and the Russell 2000.
Published June 2026 · Data source: GuruFocus
Last Friday, US stock markets sold off sharply. The S&P 500 dropped over 2%, the Nasdaq fell nearly 5%, and the question that has been circling valuation-focused investors for two years moved from abstract to immediate: how expensive are these markets, really?
The answer — measured by the most widely used valuation metric in finance — is yes, they are expensive. Significantly so by historical standards. The sell-off didn’t change that. Here is what the data actually shows.
“The S&P 500’s long-term average PE ratio is 19.69. It currently trades at 25.6. The Nasdaq 100 is at 35.1 — nearly 45% above its historical average. By any historical measure, these markets are expensive.”
What Is the PE Ratio — and Why Does It Matter?
The Price-to-Earnings ratio — PE ratio — is the most widely used measure of whether a stock or market is cheap or expensive. The concept is simple: divide the current price of a stock (or index) by the earnings per share over the past twelve months. The result tells you how many dollars investors are paying for every dollar of corporate profit.
A PE of 10 means you’re paying $10 for every $1 of earnings — relatively cheap. A PE of 40 means you’re paying $40 for every $1 of earnings — relatively expensive. The higher the PE, the more confidence (or faith) investors are expressing that future earnings will justify today’s price.
The key word is relative. PE ratios only become meaningful when compared to their own history. A PE of 25 might be expensive for a mature utility company but cheap for a high-growth technology firm. What matters most for the broader market is how current PE levels compare to their long-run historical averages — and whether the premium being paid today reflects realistic expectations about future earnings growth.
All data in this article uses GuruFocus as the single source for consistency — PE ratios vary between platforms depending on methodology, so using one source throughout produces the most comparable picture.
The Three Major US Indices — Where They Stand
25.6
Long-term average: 25.3
Median: 18.0
Record high: 131.4 (2009)
Record low: 5.3
Above Average
35.1
Long-term average: 28.7
Median: 24.5
Record high: 38.8
Record low: 12.4
Significantly Above Average
25.0
Long-term average: ~20
Median: 20.3
Record high: 52.8
Record low: 11.0
Above Average
All three major indices trade above their long-term averages. The most striking figure is the Nasdaq 100 at 35.1 — nearly 22% above its long-term average of 28.7 and approaching its all-time high of 38.8 set during the peak of the post-pandemic tech rally. The S&P 500 at 25.6 sits just above its long-term average of 25.3 — not dramatically expensive on this measure, but the long-term average itself has been elevated by the past decade of low-interest-rate expansion. Against the more conservative median of 18.0, the S&P 500 trades at a 42% premium.
Visualising the premium
The Magnificent Five — Stock by Stock
The five companies that have driven the majority of S&P 500 and Nasdaq 100 returns over the past three years — Apple, Microsoft, Nvidia, Meta, and Alphabet — tell a more nuanced story than the index-level numbers suggest. Not all of them are expensive by historical standards.
| Company | Ticker | PE Ratio (TTM) | Historical Avg | vs Average | Assessment |
|---|---|---|---|---|---|
| Apple | AAPL | 33.6 | ~28–30 (5yr avg) | +12–20% | Above average |
| Microsoft | MSFT | 24.8 | ~33 (5yr avg) | −25% | Below average |
| Nvidia | NVDA | ~36 | ~69 (3yr avg) | −48% | Significantly below 3yr avg |
| Meta | META | 21.2 | ~28 (3yr avg) | −24% | Below average |
| Alphabet | GOOGL | 28.1 | ~27 (10yr avg) | +4% | Roughly fair value |
The individual stock picture is more interesting than the headline index numbers. Nvidia — the company most associated with AI infrastructure spending and the largest contributor to index gains — actually trades at a PE of approximately 36, well below its three-year average of 69 as its earnings have grown to partially justify its elevated price. Microsoft at 24.8 trades below its five-year average of 33, having de-rated significantly from its 2023 peak. Meta at 21.2 is the cheapest of the five on a PE basis and trades below its own historical average.
Apple at 33.6 is the most expensive of the five relative to its own history — its PE has expanded significantly since 2022 as investors have assigned it a higher multiple despite slower earnings growth. Alphabet at 28.1 trades roughly in line with its ten-year average and is the most fairly valued of the group on this measure.
The headline conclusion from the Magnificent Five: several of the stocks that drove the market higher are not, by PE, as expensive as the index-level numbers suggest. The market’s elevated PE is partly a composition effect — the index is increasingly concentrated in these high-PE technology names, which pulls the average up.
The Russell 2000 — The Interesting Outlier
The Russell 2000, which tracks approximately 2,000 smaller US companies, trades at a trailing PE of approximately 32.8 as of early 2026 — significantly higher than its historical average of 15–18. This is counterintuitive: small-cap stocks are often considered the riskier, cheaper part of the market. In 2026, they are trading at a higher PE than the S&P 500.
The explanation is earnings, not price. Many Russell 2000 companies — particularly in healthcare, biotech, and regional banking — have thin or negative earnings, which mechanically inflates the PE ratio. The forward PE of approximately 25 is more representative of the profitable subset of the index. But the trailing number is a warning: small caps are not the value play they sometimes appear to be, and the earnings quality in this index is considerably more mixed than in the large-cap benchmarks.
Are US Markets Expensive? The Honest Conclusion
By PE ratio alone, the answer is yes — US equity markets are expensive relative to their long-run historical averages. The S&P 500 trades at a 42% premium to its median PE. The Nasdaq 100 trades near its all-time high PE. The Russell 2000’s trailing PE of 32.8 is well above its historical norm.
But PE ratio alone is an incomplete picture. Several factors complicate the “expensive” verdict:
- Earnings growth has been strong. The reason PE ratios have remained elevated is partly because earnings have grown faster than historical norms — AI-driven productivity, strong consumer spending, and profit margin expansion have supported the numerator, not just price appreciation in the denominator.
- Interest rates matter. The theoretical fair value of a PE ratio is inversely related to interest rates — when risk-free rates are high (as they currently are), a lower PE is justified. When rates fall, PE can reasonably expand. The trajectory of Federal Reserve policy is therefore a critical variable for whether current PE levels are sustainable.
- Concentration distorts the picture. The Magnificent Five represent roughly 25% of the entire S&P 500 by market cap. When five stocks have PE ratios between 21 and 37, they pull the index PE significantly above what the other 495 companies justify.
“The ‘everything rally’ describes a market where stocks, bonds, crypto, gold, and real estate all rise simultaneously — driven by liquidity, not fundamentals. When everything goes up together, the question is not whether some assets are overvalued. It is which ones are overvalued by the most.”
The Everything Rally Phenomenon
Perhaps the most important context for understanding current US market valuations is the “everything rally” — a term used to describe the simultaneous appreciation of almost every major asset class since the post-2020 liquidity injection. Stocks, bonds, Bitcoin, gold, real estate, art, and collectibles all hit record highs within relatively short windows of each other. This is not normal market behaviour. Normal markets see rotation — when stocks are expensive, money moves to bonds or gold. The everything rally suggests that the driver is liquidity rather than relative value — that the volume of money looking for returns has been so large that it has elevated all asset classes simultaneously. One structural reason for this convergence is how algorithmic trading has rewired market correlations — when algorithms drive the majority of daily volume, asset classes that were historically uncorrelated begin moving together.
In this context, high PE ratios are partially a monetary phenomenon rather than purely an earnings one. When central banks inject enormous liquidity into the financial system and suppress interest rates, the price of all financial assets rises — not because underlying earnings or economic fundamentals improved, but because the discount rate applied to future cash flows fell. The subsequent tightening cycle has partially reversed this, but the residual effect of a decade of extraordinary monetary policy is still visible in elevated PE ratios across every major asset class. The GuruFocus S&P 500 PE ratio tracker provides a live view of how current valuations compare to the full historical record.
The honest conclusion: US stock markets are expensive by historical PE standards. They are not at the extreme levels of the dot-com bubble, and several of the largest individual stocks are less expensive than their recent history suggests. But the overall market trades at a meaningful premium to long-run averages — and Friday’s sell-off, significant as it was, did not change that fundamental picture. The buyers who will step in on the dip will do so despite the valuation, not because of it. That is a description of a market driven by momentum and liquidity, not value. For technology-heavy portfolios specifically, it is also worth understanding the SaaSpocalypse thesis — the argument that SaaS valuations in particular remain structurally challenged even within an expensive broader market.
That is not necessarily a reason to sell. But it is a reason to know what you own.
All PE ratio data sourced from GuruFocus as of June 2026 unless otherwise stated. Russell 2000 data from Siblis Research. PE ratios change daily with market prices and earnings releases. This article is for informational purposes only and does not constitute financial advice. Past PE levels are not predictive of future returns.