The S&P 500 Costs 27.5 Times Earnings. History Says What a Starting Multiple That High Buys You Over 10 Years.

The article argues that the S&P 500 is trading at an unusually rich valuation, with the Vanguard S&P 500 ETF (VOO) near its 52-week high and the index priced around 27.5 times earnings, well above the long-run average of about 16. Using historical examples, it shows that similar starting valuations have often preceded weak long-term returns, especially the 2000 peak that led to a slightly negative decade. In contrast, low starting valuations in 1982 produced exceptionally strong gains. Vanguard’s own capital markets model now forecasts only 4.2% to 6.2% annual U.S. equity returns over the next decade, reflecting elevated valuations. The piece does not predict an imminent crash, but it warns that future gains may be far more modest than the recent decade unless earnings growth meaningfully catches up with prices.