Alexis Bienvenu, Fund Manager, La Financière de l'Échiquier.
The record highs chalked up almost daily by global equities and, even more so, the stratospheric performance of certain iconic securities such as Nvidia (+1,411% over three years in dollar terms, or 147% per year [1]), necessarily raise the critical stock market question: are we in a bubble, particularly in the US market? Or put more simply: are equity markets too expensive?
The answer: yes, but not without reason. Yes, because, in terms of the expected price/earnings ratio (PER) for the coming year, based on the Bloomberg consensus, the S&P 500 index is currently trading on around 22x, which is well above the long-term average of around 16x. Of course, a large part of this premium is due to the best-performing US securities. The so-called Magnificent Seven group of stocks [2] are trading on a PER of 37x. Nvidia is trading on an even higher multiple of 48x. But the earnings growth of this group is exceptional, and their sparkling prospects justify a considerable premium.
Another way of estimating the advisability of investing in equities is the equity risk premium. This represents the excess return expected for equities in comparison to government bonds. It is currently close to zero! Not only are equity indices expensive, in addition to this, US bonds offer a considerable nominal return of 3.60% on a one-year horizon [3].
In Europe, the answer is quite different. Equities are certainly trading slightly higher than their long-term average – at an expected PER of around 15x for the Euro Stoxx 50, versus an average of close to 13x — but this situation is far from extreme.
However, the second part of the answer is just as important: “not without reason”. Indeed, at least from a stock market perspective, there is a plethora of good news coming out of the US. According to the Bloomberg consensus, expected GDP growth for 2025 and 2026 has been constantly revised upwards since the summer. It now sits at around 1.8%, thanks, for the most part, to the technology segment. The traditional industry sentiment indices are also in expansionary territory, with the sole exception of the ISM Manufacturing PMI. The Small Business Confidence Index is high, at over 100. On top of this, the oil price is very affordable, averaging close to USD 65 per barrel for a year. Meanwhile, the dollar is weakening, favouring exporting companies. Lastly, despite the price rises due to trade tariffs, overall consumption is holding up well, with the exception of low-income households.
Yet this almost idyllic picture is marred by two dark spots. Firstly, employment, where momentum has clearly weakened, or indeed reversed. And secondly, the real estate sector, which is still lacklustre, due to very high interest rates on mortgages. But the employment situation is quite particular. Whilst job creation is weak or even negative, the number of job seekers is equally so. The result is an unemployment rate that is rising only slightly, to a very modest 4.3% [4]. As for real estate, as the US Federal Reserve recently cut its rates, some renewed momentum is to be expected.
So there is no quick and easy answer to whether there is a valuation bubble. However, a quick recap of the usual metrics suggests that although the market is expensive, there are good reasons for this. From this perspective, its valuation does not seem particularly worrying, at least for as long as current economic trends persist.
[1] Data as at 2 October 2025
[2] Magnificent Seven: Alphabet , Amazon , Apple , Meta, Microsoft , Nvidia and Tesla
[3] Data as at 3 October 25
[4] Data from August 2025
