June 1, 2026
Add Context, and Stock Market Valuations are Fair
Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial
Brian Booe, Associate Analyst
We agree with the consensus view that stock valuations are elevated by traditional measures. But valuations should be considered in the context of the economic regime and earnings environment. Factoring in outlooks for economic growth, inflation, interest rates, and earnings, we are comfortable with the current 21 price-to-earnings ratio (P/E) for the S&P 500 Index. To justify a higher P/E and further moves higher from here, assumptions must be made about the path that these key drivers will take in coming months. We expect more of these factors to break positively than negatively, but it seems clear that a lot of optimism is currently being priced in. When the next bear market might arrive and where valuations will be at that time is difficult, if not impossible, to predict, but our best guess is that this bull market extends through 2027 (we define a bear market as a 20% decline on the S&P 500 based on closing prices). Gains beyond that will depend on whether the economy continues to grow, the path of interest rates and inflation, and the productivity gains (and potentially unemployment) AI brings.
