How Overvalued is the S&P 500 Index Today?
The S&P 500 Index closed at a new all-time high of 6,204.95 on June 30, 2025, prompting a familiar question among both retail investors and professional advisors: is the market now overvalued?
It’s a fair concern in any bull market, but especially today. Roughly 42% of the index is concentrated in just 15 stocks, a level of concentration that has led to growing unease about both valuation and lack of diversification.
With that in mind, here’s what the data says when you break things down across two of the most notable valuation metrics.
What the Buffett Indicator says
The Buffett Indicator is a simple but well-known way to assess how expensive the U.S. stock market might be.
Named after Warren Buffett, who once referred to it as “probably the best single measure of where valuations stand at any given moment,” the indicator compares the total value of the U.S. stock market to the country’s gross domestic product (GDP).
Historically, anything above 100% is considered overvalued, and 200% suggests the market is priced at twice the size of the economy.
In fairness, the market has often traded above historical norms for the last decade due to lower interest rates and more tech-driven profits. But this ratio still signals a rich market by almost any historical standard.
It may help explain why Berkshire Hathaway is currently holding over $350 billion in short-term U.S. Treasury bills. The Oracle of Omaha appears to be waiting for better valuations.
What the Shiller CAPE says
The Shiller PE Ratio, also known as the Cyclically Adjusted Price-to-Earnings (CAPE) Ratio was developed by Nobel Prize–winning economist Robert Shiller.
Unlike the standard PE ratio, which compares a stock’s price to its most recent 12 months of earnings, the Shiller PE smooths out volatility by using the average of inflation-adjusted earnings over the past 10 years. This gives a longer-term view of market valuation.
As of July 1, 2025, the Shiller PE stands at 37.82. That’s more than double its historical mean of 17.25 and significantly above its median of 16.04. Only once in history has it been higher, during the dot-com bubble in late 1999, when it peaked at 44.19.
Valuation-wise, this suggests that stocks are expensive relative to long-term fundamentals. The last few times the CAPE ratio was this elevated, future returns over the following decade were modest at best.
It doesn’t guarantee a crash, but it does imply that upside may be limited, and that caution is warranted at this stage in the cycle.
What can investors do?
Conventional wisdom says “stay the course.” But as the drawdown chart above makes clear, S&P 500 investors can and should expect periods of sharp declines, sometimes lasting months or years.
From the dot-com bust to the 2008 financial crisis to the COVID-19 selloff, drawdowns of 20% to 50% have been a recurring feature of investing in the S&P 500.
One approach to mitigate this is equal-weighting the S&P 500. This reduces concentration in mega-cap tech and skews exposure more toward mid-cap names.
The downside is cost. Equal-weight ETFs often come with higher expense ratios than traditional market-cap-weighted counterparts.
Another option is to selectively go beyond the benchmark's basket. Nothing stops investors from allocating directly to high-quality mid and small caps that aren’t heavily represented in the S&P 500.
A more tactical strategy could focus on quality and valuation metrics such as return on equity (ROE), free cash flow yield, earnings yield, and dividend growth consistency.
Screening for these traits can potentially help uncover companies trading at attractive multiples with the financial strength to weather volatility.
About Us
Jay D. Hatfield is CEO of Infrastructure Capital Advisors and is the lead portfolio manager of the Infrastructure Capital Bond Income ETF (NYSE: BNDS), InfraCap Small Cap Income ETF (NYSE: SCAP), InfraCap Equity Income Fund ETF (NYSE: ICAP), InfraCap MLP ETF (NYSE: AMZA), Virtus InfraCap U.S. Preferred Stock ETF (NYSE: PFFA), InfraCap REIT Preferred ETF (NYSE: PFFR) and private funds. Each month Infrastructure Capital hosts a monthly economic webinar; you can sign up to attend by visiting our website www.infracapfunds.com (important disclosures can also be found on the website). For a prospectus please reach out to us or visit the links above for each respective fund.
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