S&P 500's Expensive Valuation Combined With All-Time High Household Holdings: A Look At Where US Stock Market Stands

Expensive valuations of the S&P 500 index, combined with all-time high U.S. household equity holdings, have been signaling high investor optimism despite looming uncertainties surrounding fiscal policies.

What Happened: As the market is grappling with uncertainties around the tariff and tax-related policies, the bond market upheaval, dollar decline, and the fears of rising trade deficit have kept investors on the edge.

However, according to the Federal Reserve Economic Data released by the Federal Reserve Bank of St. Louis, the households’ investment in corporate equities stands at an all-time high of 43.47%, as of the fourth quarter of 2024.

This deep exposure to equities comes at a time when the S&P 500 index price-to-earnings ratio stands at 23.73 as of May 23. According to the World PE Ratio data, this was 32.62% higher than the last 20-year average of 15.99.

The P/E ratio indicates how much investors are paying for every $1 of expected profit. So, as per the data, investors are paying $23.73 for $1 of next year's expected earnings.

The S&P 500 Shiller CAPE Ratio, also known as the Cyclically Adjusted Price-Earnings ratio, is used as a valuation metric to forecast future returns, where a higher CAPE ratio could reflect lower returns over the next couple of decades, whereas a lower CAPE ratio could reflect higher returns over the next couple of decades.

According to YCharts, this ratio stood had 34.82 as of May 8, which was more than double its average of 16, thus indicating lower returns in the future.

At the same time, the U.S. personal saving rate stood at 3.90% as of March 2025, compared to 4.10% last month and 5.20% last year. This is lower than the long-term average of 8.41%, according to YCharts.

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Why It Matters: These factors combined signal that stocks are expensive and owned very broadly, implying that even a moderate drop will affect the whole market. However, analysts remain positive on the stock market returns for 2025.

Ed Yardeni of Yardeni Research raised the S&P 500 year-end target back up to 6,500 from 6,000, after the U.S.-China 90-day truce. –

Goldman Sachs sees the S&P 500 12-month target at 6,500, starting March 2025, citing stronger earnings, easing tariffs, and falling recession risk in March.

Carson Group has predicted the S&P 500 would rise 12% to 15% in 2025, implying a year-end close between 6,717 (at 12% return) and 7,443 (at 15% return).

Whereas, J.P. Morgan estimates a price target of 6,500 for the S&P 500. They also acknowledge that “there is a large standard error around this forecast and the possibility that S&P 500 may not reach this level until 2026”.

The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, rose in premarket on Tuesday. The SPY was up 1.28% to $586.51, while the QQQ advanced 1.41% to $516.40, according to Benzinga Pro data.