Chart of the week

Tech-heavy market accentuates stocks’ rich valuations

Overconcentrated and expensive? This week’s chart looks at valuations on the top 10 S&P stocks vs. the full index.

June 30, 2023

S&P forward P/E ratios: top 10 stocks vs. full index

Source: FS Investments, Bloomberg Finance, L.P., as of June 29, 2023. Bloomberg Finance, L.P., as of June 22, 2023.

  • Halfway through 2023, markets have been almost entirely in a risk-on mode as economic data has gained steam and investor sentiment has improved along with it. The S&P is up approximately 15% year to date.1
  • The rally may be cause for potential concern given its extraordinarily narrow nature. As the S&P has become more concentrated, for example, its returns have been increasingly derived from its largest names. 
  • In fact, more than 85% of gains in the S&P 500 YTD can be attributed to seven of the largest stocks in the index.1 Absent these megacap, mostly tech names, the index would be nearly flat year to date.
  • The S&P’s top names (AAPL, MSFT, NVDA, etc…) are all well-known and profitable companies—together, they contribute about a quarter of the index’s earnings. That they are fundamentally healthy, however, does not mean they are attractively priced. As the chart shows, valuations for the top ten stocks (based on forward price-earnings ratios) in the S&P are extraordinarily stretched relative to the rest of the market.1
  • Against this backdrop, investors might consider today’s (richly valued and heavily concentrated) bull market a good opportunity to begin de-risking their portfolios, whether to more attractively priced international markets or less correlated or alternative source of return.

  • FS Investments, Bloomberg Finance, L.P., as of June 28, 2023.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

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