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Return to the beginning of the yr and there was numerous uncertainty about how US inventory markets may do in 2025. To this point this yr, although, the S&P 500 is up 17%.
That, by the way, is similar progress we’ve got seen on this aspect of the pond for the FTSE 100 up to now this yr. So, the index of main British shares have been valued decrease than its US counterpart initially of the yr and that is still the case.
The S&P 500’s efficiency this yr is spectacular, particularly contemplating the context. Now we have seen ongoing geopolitical uncertainty, important and unpredictable shifts in US commerce coverage, and rising indicators of weakening shopper demand within the US economic system.
But the S&P 500 powers on. In latest days it has been edging nearer to setting a brand new all-time excessive.
So, ought to I make investments, for instance by placing some cash into an S&P 500 tracker fund?
I’m getting nervous about some valuations
I don’t plan to.
There are a number of causes for that. One is my basic choice to put money into rigorously chosen particular person shares fairly than tracker funds.
One other issue is my concern concerning the valuation of many main US shares. To me a few of them look unjustifiably excessive. That doesn’t imply that they won’t nonetheless go increased. The index could hold climbing in 2026 if investor sentiment stays optimistic, because it has been recently.
Nonetheless, I’m at all times nervous about shopping for a share if I feel its present valuation appears too excessive to justify.
Nvidia sells for 45 occasions earnings, for instance. I like the corporate’s confirmed enterprise mannequin and large profitability, however that valuation appears excessive to me given dangers like a slowdown in AI information centre spending in some unspecified time in the future in future.
But that valuation is a minimum of one I can get my head round, even whether it is past my consolation zone.
In contrast, Palantir has a price-to-earnings ratio of 733. This isn’t some tiddler, however a agency with a $424bn market capitalisation.
Even what’s principally a second-hand automobile seller (and mortgage supplier) – Carvana – has a market cap of $87bn and P/E ratio of 91.
On the hunt for bargains
Do such valuations imply I’ve misplaced curiosity within the S&P 500?
By no means – I proceed to search for particular person bargains inside it.
For instance, one S&P 500 share that has had a nasty 2025 up to now is Lululemon Athletica (NASDAQ: LULU).
The yoga retailer has seen its share value drop by 52% because the begin of the yr. That have to be painful even for individuals skilled in having flexibility and a relaxed thoughts!
My response to the value fall has been to load up on the shares.
Lululemon’s troubles replicate a number of the wider challenges I discussed above.
Tariffs have eaten into its profitability. The corporate’s key US market has seen demand fall. Worth-conscious consumers have in contrast the corporate’s slow-changing core vary to rivals like Alo and a few have discovered it wanting.
However Lululemon has recognised this problem within the US and is actively addressing it. In the meantime, it maintains a robust model and enormous following.
Internationally, it continues to develop healthily and I see non-US gross sales as an enormous ongoing progress alternative.
