AI Summary
5 min read“We have twenty seven stocks in the S&P 500, only 27 trading with a P/E greater than 40. That’s like matching past bear market lows, and we’re within two percent of all time highs.”
That single data point is the animating puzzle of this episode of The Compound and Friends. How can stocks be near record levels while the number of truly expensive names has collapsed to levels last seen in March 2020 and October 2022? The hosts—Michael Batnick, Sean Russo, and Matt (aka “Chart and Matt”)—walk through a series of charts that collectively argue the market is not as frothy as the headlines suggest, even as they acknowledge real fragilities beneath the surface.
The Great Rerating: Cheap Stocks in a Bull Market
The core thesis Matt introduces is “the great rerating.” The first chart shows the raw count of S&P 500 stocks with a forward P/E above 40: just 27 today. That is the same level as the COVID crash low and the 2022 bear market low. “Where is the enthusiasm?” Batnick asks. If this were a bubble, you would expect dozens of names trading at nosebleed multiples. Instead, two-thirds of all technology stocks—the supposed epicenter of mania—trade below 30 times forward earnings. Sector by sector, the heat map Matt built shows 52% of all S&P 500 constituents fall into the 10–20x forward P/E bucket. That is not expensive by historical standards.
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What you'll learn
- 1 (03:45) **The Great Rerating: Fewer Stocks Are Extremely Expensive** - Matt introduces the concept of a "great rerating" happening in the market, contrasting with the earlier "great broadening."
- 2 (05:51) **Valuation Heat Map: Tech Isn't as Pricey as You Think** - Matt shows a sector-by-sector breakdown of forward P/E ratios to demonstrate that most stocks are reasonably valued.
- 3 (07:46) **The Price-to-Sales Counterargument (and Why It's Weak)** - Sean presents the counterpoint that price-to-sales ratios are at all-time highs, then explains why this metric is misleading.
- 4 (09:02) **Earnings Are Breaking Out of a 90-Year Channel** - The panel discusses a Deutsche Bank chart showing S&P 500 quarterly earnings breaking above a long-term trend channel.
- 5 (11:16) **The Market is Pricing in Unsustainable Earnings Fears** - Michael points out that the market's current multiple already reflects skepticism about the sustainability of earnings growth.
- 6 (11:45) **Earnings Growth is Real, Even Without Unrealized Gains** - Matt presents a chart from Bianco Research showing S&P 500 earnings growth, highlighting the strength of operating earnings.
- 7 (14:50) **"Invest in What You Know" Is Getting Wrecked** - Michael introduces a chart titled "Do Not Invest in What You Know," showing severe drawdowns in iconic consumer brands.
+ Full timestamped outline available in the app
Guests on this episode
Show Notes
Join Michael Batnick, Chart Kid Matt and Sean Russo for another episode of What Are Your Thoughts and see what they have to say about: the great market re-rating, why falling P/E ratios and record-high price-to-sales multiples can coexist, and whether booming corporate earnings signal a new era for U.S. stocks. We also look at why “invest in what you know” can be terrible advice, where the fraud is hiding in today’s markets, Apple’s latest head-scratcher, unlocking SpaceX for investors, Polymarket, Mark Walter, and more. Plus, Michael brings the mystery chart.
This episode is sponsored by DBMF, the world’s largest managed futures ETF. Discover why DBMF’s liquid, uncorrelated, managed futures strategy could be what your Alts allocation is missing at: http://www.dbmf.com/WAYT
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Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management.
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