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Key Points
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The S&P 500 has returned 12% year to date, reaching 25 record highs. Current valuation stands at 22.5 times forward earnings.
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Warren Buffett advises investors to buy stocks at rational prices when future earnings are likely to increase significantly.
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Historically, the S&P 500 has often seen better forward returns after hitting record highs compared to non-record highs.
The S&P 500 (SNPINDEX: ^GSPC) has advanced 12% this year and achieved 25 record highs, rebounding 32% since its April low, which was 19% down from its high before the announcement of tariffs by President Trump. As of now, the index trades at a forward price-to-earnings multiple of 22.5, higher than the 10-year average of 18.5.
JPMorgan Chase data between 1970 and 2024 indicates that the S&P 500 has averaged a 9.4% return in the 12 months following record highs—marginally better than its average 9% return following non-record highs. Despite this historical performance, the S&P 500’s current high valuation raises concerns about potential negative returns in the following year.
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