Global Macro Chart of the Day: (#130): Tech is shifting fair value for the S&P

Research evidence excerpt

Global Macro Chart of the Day: (#130): Tech is shifting fair value for the S&P

Global Research

23 July 2026ab

Global Macro Chart of the Day Economics

Global(#130): Tech is shifting fair value for the S&P

Arend Kapteyn

Economist

S&P 18% cheap to fair value, but entirely due to Tech+; rest of market expensive arend.kapteyn@ubs.com

+44-20-7567 0531

Many investors view the S&P 500 (SPX) as very expensive, while others debate what level

of rates could ultimately undermine equities. However, as Keith Parker argues in his

relaunch for US equity strategy, the fair value for the S&P 500 forward P/E may be as

high as 24.6x, versus the current 20.1x. To reflect the changing composition and

characteristics of the US equity market, his framework incorporates more company

fundamental variables, and can explain 88% of the variation in the S&P 500 forward

multiple since 2004. It includes: (i) US 10y + IG OAS; (ii) economic surprises; (iii) US 1yr

minus Fed rate; (iv) sales growth 3-5yr CAGR, (v) the cash flow return on investment

(CFROI); (vi) equity vol/rates vol; (vii) sales growth inflection; and (viii) dividend payouts.

The regression output suggests that a 1pp change in company fundamentals matters

nearly 2x as much as a 1pp change in bond yields.

What is driving the surge in the fair value P/E is Tech+ forward sales growth and CFROI

over the past 3–9 months, reflecting AI-related demand. By contrast, ex-Tech sales

growth has remained broadly unchanged for the past two years. The implication is that

fair value for the Tech+ sector is roughly 36x forward earnings versus an actual multiple

of 22x. In other words, Tech+ is trading 39% below its fitted value. Put differently,

current valuations are not expecting the expected growth and profitability trajectory to