" David Giroux: I don’t mean to start this conversation on a down note, but we are probably as negative about the S&P 500 as we have been in a long time. Based on our company-by-company analysis of where stocks will trade by 2030, our five-year forward total-return estimate for the S&P 500 is less than 5% a year.

The market is trading for 22 times 2025 estimated earnings and 26 times 2025 free cash flow. If you break down the components of the index, you find that the market isn’t just expensive, but it is broadly so. For example, traditional growth stocks, about 44% of the index, trade for 32 times earnings, versus a historical average of 28 times. The rest of the market, even ex-traditional growth stocks and removing the Teslas and Nvidias, trades for 18 times, versus 15 historically. Heavy cyclicals, including banks, industrials, and chemicals, are trading for 17 times earnings, a 10-year high, compared with 12 or 13 historically.

AI and AI derivatives were great stocks in 2024, and expectations and multiples remain high. The economic-expansion plays have had a big boom since Trump was elected president. Rockwell Automation is trading for 28 times earnings. Then there are what I call the Nifty 20—low-double digit growers whose valuations are out of whack. Costco is trading at 49 times earnings, and Cintas, at 40 times. And then, there are the most speculative names, the Teslas and Palantirs."

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