U.S. Stocks Might Not Be as Expensive as You Think

Whether US stocks are overvalued hinges entirely on whether record-high profit margins expand, hold, or revert.

• Two PE measures diverge: Trailing P/E sits at 25.4 (about one standard deviation above average), while the Schiller CAPE ratio is 40.6, near its most expensive level ever (nearly two standard deviations above average).
• Earnings growth explains the gap: S&P 500/MSCI USA earnings per share rose 61% over the past year, pulling trailing P/E down even as CAPE—based on a decade of smoothed real earnings—stays elevated.

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