Originally Posted 28 October 2025 – Chart to Watch: Higher valuations supported by stronger fundamentals
Authors: Jeremiah Buckley, CFA and Ian McDonald, CFA
The market has become much less cyclical over time, and valuations have increased alongside growth and quality.
Key takeaways:
- S&P 500 Index sectors focused on growth, stability, and defense have grown from about 60% of the index in 2014 to roughly 74% today. Meanwhile, cyclical sectors have shrunk from roughly 40% to 26%.
- U.S. large-cap market multiples are higher than in recent history, but it is worth noting that the mix of industries within major indexes has shifted toward faster-growing, more profitable sectors that typically command higher multiples.
- Fundamentals are helping to support current valuations: The gap in profitability between growth and value indexes has widened over time, helping explain why the valuation gap has grown as well.
Source: Bloomberg, as of 15 October 2025.
The S&P 500® Index looks very different today than it did a decade ago. Sectors focused on growth, stability, and defense1 have grown from about 60% of the index in 2014 to roughly 74% today. Meanwhile, cyclical sectors2 have shrunk from roughly 40% to 26%.
Energy offers a stark example of shifts in market composition: its weight in the S&P 500 has fallen from approximately 11% in 2014 to about 3% today. The bottom line is that the S&P 500 has become growthier, and market valuations have risen accordingly.
The chart above compares large-cap growth and value indexes on two key measures: valuation (price-to-book ratio, shown on the left axis) and quality (return on equity, shown on the right axis). The comparison highlights a key difference in today’s market versus the tech bubble of 2000.
Growth stocks trade at a wide valuation (price-to-book) premium to value stocks today, but there is a crucial difference from 2000: Fundamentals are helping to support current valuations.
The gap in profitability (return on equity) between growth and value indexes has widened over time, helping explain why the valuation gap has grown as well. Since 2002, increases in price-to-book ratios have been matched by comparable increases in return on equity. During the 2000 tech bubble, by contrast, growth valuations surged without any fundamental support.
“U.S. large-cap market multiples are higher than in recent history, but it is worth taking into account that the mix of industries within major indexes has shifted toward faster-growing, more profitable sectors that typically command higher multiples. Strong recent earnings growth – with similar expectations through year end and into next year – also help justify higher valuations.”
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