What History Says About Future S&P500 Returns | April 2026 Market Update

Full transcript:

Hello and welcome to this month’s market update for April 2026. My name is Steve Latham. I’m the Chief Investment Officer for Bernicke Wealth Management and today we’re going to do a review of where current market valuations stand. There have been a lot of activity throughout the market since the beginning of the year, transitioning from a primary focus on artificial intelligence linked stocks to a focus, more broadly speaking, around what are the valuations and pockets of value that you can find not only in the United States but in international markets as well?

So let’s dive right into it.

Understanding Price-to-Earnings Ratios

One of the things that we like to look at is the price to equity ratio. And all this really means is what is the value of something divided by how much it’s earning. It’s a very common valuation metric for individual stocks to tell you how the market is valuing it. But even more importantly, you can use that measure to value what the expected earnings of the company are going forward.

Generally, in a 12 month period. And not only that, you can push all those companies valuations together and get a valuation for an overall index as well. And that index that we’d like to focus on, at least for the United States, is the S&P 500. So what we see here in front of us is the historical price to equity ratio for the S&P 500 going all the way back to the mid 90s.

S&P 500 Valuations: Then and Now

And what you can see is we have of course gone through a couple different regimes, evaluation metrics going all the way back to the late 90s and 2000. You can see very clearly during the .com bubble we had S&P valuations really high. And all that meant was the market was willing to pay a lot more for equity exposure, even though those companies weren’t earning a lot in their day to day businesses.

Now, of course, we all know that the .com bubble popped, and we saw the valuation measures come down to a more affordable level. And even in the mid 2000, they were very well attractive for a variety of reasons. And when you get all the way to the financial crisis in 2008, you can see that those valuation measures were actually very attractive.

Although again, we were dealing with the financial crisis at the time. So it was very difficult for people to step in at that time and buy stocks, given all the volatility during that period. Since then, we’ve seen market valuations increase over the years. Of course, we had Covid here in 2020. That’s where valuations sank dramatically, only to rebound just as dramatically throughout the course of the last year.

And since then, with the exception of 2022 to 2023, where we had a pullback in the market, valuations on average have remained high. And that’s really been one of the sticking points for a lot of investors in the market. Basically saying valuations are too high. I’m uncomfortable putting money to work these days. When is a good time to put that money to work?

Given where those valuations are at? Well, the good news is since the beginning of the year, we’ve seen those valuations come down to a level that is a little bit more reasonable compared to where we’ve seen them in the past. And as of the end of March, we’ve seen valuations fall back below 20 times forward earnings. And again, all that means is if a company is earning $100 for the next 12 months and you put a 20 times multiple on it, then the stock valuation of that company should be 2000.

And so if you compare that to the S&P 500, current multiples would suggest that the valuations be somewhere around that 6,760–6,900 level, which is right around where we’re at right now. So when we’re seeing how the equity market is responding to some of the volatility, what we’re actually referring to is what are those valuation metrics telling us as far as how attractive the market is compared to where it was in the past.

And right now, the S&P is showing signs that it is a little bit more attractive to invest in than what it was even just a couple months ago.

What Valuations Tell Us About Future Returns

One of the key takeaways that we can use from these valuation metrics is what would be our expected earnings returns for the next year, the next five years, based off of where that valuation is.

And this next slide here shows us exactly that. Effectively what we’re seeing is based off of a valuation of the S&P 500. What have the historical returns been for one year going forward. And for five years going forward. And on the left hand side you see those return profiles for one year going forward. And of course that is looking a lot more volatile than the five year returns on the right hand side.

So we tend to look at a longer time period when whenever we’re trying to determine what our expected for returns can look like. And so if we just focus on this five year return period, we can see that with our current valuation profile, just shy of 20 times forward earnings we would expect over the next five years our S&P 500 index to return somewhere in that upper single digit level year over year.

Now, that’s not bad. In fact, that’s pretty much in line with what our expected return profile looks like on a longer time period. And it’s a lot more attractive than what it was whenever we had 23 times earnings, which would put that point right around here, which effectively says over the next five years you might earn a couple percent year over year based off of what’s happened in the past.

So again, this is telling us that with the equity markets pulling back a little bit, this is providing investors going forward a more optimistic outlook for those future returns.

International Markets and the Case for Diversification

Now, this isn’t just for the United States. We can look at this on a global scale as well. If we look at international valuations country by country, really what we’re looking at, at least as far as we’re concerned, is what are the developed nations outside of the United States getting valued at?

And the cleanest way to look at this is through the eurozone. This of course includes the bloc of European countries. I think France think Germany, two largest countries in the eurozone. What are their stock markets being valued at, and how does that look relative to the recent past? And what we can see here, if we’re just focusing on the eurozone, is that long term average for them is quite a bit lower than the United States at a little over 14 times forward earnings.

Just as recently as the beginning of the year, it was valued closer to 15 times forward earnings. But again, we’re seeing that the current valuation has come down quite a bit. And we’re seeing those international valuations become a little bit more, attractive as a result of some of the volatility that we’ve seen so far this year. Now you can take this metric and look at any other bloc of companies or countries and make your own determinations.

But basically what this is telling us is not only is the US becoming a little bit more attractively valued, but international companies, despite their performance or their outperformance, I should say over the last 12 to 18 months, still remain attractively valued, especially compared to the United States. And tying this all together to the theme that we were just talking about last year, which is artificial intelligence, you saw a lot of people get rewarded by concentrating their portfolios in those technology stocks.

That rewarded them because there was a lot of risk being taken based of all based off of all the growth profiles for artificial intelligence in the companies linked to that theme today, or at least throughout the beginning of 2026. We’re finding that there’s more rewards being given for those who have diversified their portfolios, not only because the artificial intelligence theme is taking a bit of a breather, but because the other areas of the world that you can invest in, specifically the eurozone, you could say the same thing with Japan.

Even some of emerging market countries have performed relatively well because value investors are seeing that there’s value to be had based off of these lower valuations compared to where they were in the past. So that’s all to say that diversification can still be rewarding. And concentration, while it can be rewarding for certain periods of time, comes with its own risk of not being exposed to other areas of the market when things tend to turn.

And in this day and age, they tend to turn pretty quick. So that’s our take for April 2026 as it relates to valuations not only in the United States but internationally as well. If you have any questions related to the markets, economics or anything else, we’re always here to answer those questions for you. Thank you very much.