S&P 500 CAPE Valuation at 6,845

Dec 25, 2025 - Market Valuations

The S&P 500, at 6,845, trades at a CAPE ratio of ~30x — well above its historical average of ~17x. This signals significant overvaluation, with forward real returns likely in the 3–4% range.

Valuation context

Dividend yields are modest (~1.5%), offering little cushion. The premium reflects dominance of tech giants with durable moats, but broad market valuations are stretched.

Quality investor implications

Quality investors must balance high valuations with genuine quality. Selective exposure to firms with strong balance sheets, consistent dividend growth, and long‑term growth drivers can still deliver compounding. But broad exposure to the index may disappoint.

Conclusion

The S&P 500 at 6,845 is expensive relative to history. Quality investors should remain selective, focusing on genuine moats and long‑term growth rather than broad exposure.

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Bob - Dec 18, 2025

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Colin - Dec 18, 2025

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