High-priced holiday season
January 06, 2026
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3 min
Gateway market perspective
Market volatility experts from Gateway Investment Advisers, specialists in options-based investment strategies, examine key volatility trends each month and risk management ideas to help investors stay invested for the long run.
High-priced holiday season
- Equity valuations are historically elevated, with CAPE, P/B, and P/S ratios all near or at all time highs, comparable to the Dot Com era.
- High valuation ratios historically correlate with lower future real returns, with notable negative correlations across 5 and 10 year periods.
- At a CAPE of 40 (98.7th percentile since 1881), long term forward returns have historically been significantly lower, especially when CAPE sits above the 90th percentile.
- Market concentration has surged, with top S&P 500® names driving outsized gains; the top 10 stocks returned ~389% since 2018 vs. ~205% for the full index.
- Equal weight S&P 500® continues to lag, echoing late 1990s conditions, and historically has cushioned losses better in major drawdowns (e.g., Dot Com period).
- Market leadership has become highly concentrated, with mega cap technology and AI related stocks driving a large share of overall gains. This concentration resembles the late 1990s and helps explain why the S&P 500® Equal Weight Index has significantly underperformed.
Key takeaway
Despite strong recent performance, today’s market shows unusually high valuations and heavy reliance on a small group of mega cap leaders, creating conditions that have historically amplified both return dispersion and the potential impact of market reversals.
