Market Highs & Low Expectations

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Right, let’s be honest. The S&P 500 has been throwing a party for the last decade. A 351% total return as of February 12th? Staggering. An annualized 16%? Almost vulgar. It’s the kind of performance that makes you deeply suspicious, frankly. Like, what’s the catch? And believe me, I’m always looking for the catch.

And here it is, whispering in the background like a slightly embarrassing secret: the market is…optimistic. Perhaps excessively so. It’s all very well enjoying the free champagne, but someone needs to check the lifeboat drills.

Valuation: Or, How Much Air Is In That Balloon?

They have this thing, you see, called the CAPE ratio. Cyclically Adjusted Price-to-Earnings. Sounds dreadfully sensible, doesn’t it? It’s basically a way of working out if the market is priced like a sensible shoe or a ridiculously impractical, but very shiny, stiletto. It looks at average earnings over ten years, adjusted for inflation. A bit boring, if I’m honest, but occasionally useful.

Right now, it’s at 40.4. Which, apparently, is the highest it’s been since the dot-com bubble. The dot-com bubble! I was younger then, and considerably less burdened by the weight of financial responsibility. Good times. But also, a cautionary tale. It’s like the market is wearing a vintage dress it doesn’t quite fit. It looks good, but you know it’s going to snag on something.

Invesco, a firm that knows a thing or two about moving money around, did some digging. They found that when the CAPE ratio is this high, returns over the next decade tend to be…flat. Or even negative. Flat. The horror. It’s enough to make you consider a life of quiet desperation and competitive flower arranging.

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So, What Do We Do? (Don’t Panic…Yet)

The obvious thing to do, naturally, is to run for the hills. Sell everything, buy a small farm, and learn to knit. But that feels…dramatic. And frankly, I’ve always been terrible with knitting needles. So, let’s consider a slightly less extreme approach.

Because here’s the thing: the market in 2026 isn’t your grandfather’s market. It’s…different. We have these enormous tech companies dominating everything. They’ve built these ridiculously strong ‘economic moats’ – basically, they’re so good at what they do, it’s almost impossible for anyone to compete. They’re printing money, and they’re still growing. It’s…annoying, really. But also, undeniably effective.

Then there’s the rise of passive investing. Everyone’s just buying S&P 500 index funds. Which means there’s a constant stream of money flowing into the market, regardless of what’s actually happening. It’s a bit like trying to stop a flood with a teacup, but it’s working…for now.

And let’s not forget the government. They’re printing money like it’s going out of style, and interest rates are still remarkably low. More liquidity sloshing around the system. It’s a recipe for…something. I’m not entirely sure what, but it’s definitely not a healthy diet.

So, yes, the market is expensive. Yes, there’s a risk of a correction. But I still think buying an S&P 500 ETF is a reasonable thing to do. Especially if you can afford to add to your holdings regularly – that’s called dollar-cost averaging, and it’s a surprisingly effective way to smooth out the bumps. It’s not glamorous, but it’s…sensible. And sometimes, sensible is enough. Though, honestly, I prefer a bit of chaos.

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2026-02-16 18:24