Is it madness to buy S&P 500 stocks now?
With the S&P 500 reaching a price-to-earnings ratio of 31.5 and the closely-followed Buffett Indicator all the way up at 230%, there are serious concerns of extreme stock market valuations in 2026.
So does that make buying US stocks a crazy idea? Well, the answer’s a little complicatedâ¦
Lots of uncertainty
Institutional analysts are forecasting ambitious corporate earnings growth for 2026.
This follows after both 2024 and 2025 outperformed expectations. And with substantial tax cuts scheduled for the first half of 2026 courtesy of President Trumpâs One Big Beautiful Bill Act (OBBBA), consumer spending could prove to be far more resilient than expected, driving up profits even further.
Yet at the same time, investors are also seeing cracks in the US labour market. Unemployment, while still low by historical standards, is on the rise with full-time employment in decline.
Furthermore, while the Trump administration has secured new trade agreements with major partners including Europe and the UK, tariffs largely remain unresolved, with their subsequent inflationary impact still not fully incorporated in the prices of goods and services.
Put simply, itâs a complex situation with positive tailwinds being offset by negative headwinds. The difficultly is knowing which direction things are going to swing.
According to JP Morgan, the tailwinds currently have a higher chance of success, with a 65% probability that the US economy will grow in 2026, and within that even a 15% chance it will thrive. While thatâs certainly encouraging, it also means thereâs a 35% of a recession that could trigger a significant stock market sell-off given todayâs lofty valuations.
There are always opportunities
While the S&P 500 as a whole is richly valued, there are nonetheless still reasonably-priced US stocks for investors to consider. And one small position from my portfolio that stands out is PayPal (NASDAQ:PYPL).
Over the last 12 months, the digital payments giant has seen its market-cap shrink by over 30%. The problem stems from a lack of revenue growth. A few years ago, the fintech was regularly expanding its sales and user base by double-digits. Yet looking at the outlook for 2026, a 5%-6% projected revenue increase didnât exactly thrill the market.
However, while investors have been quick to punish PayPal for its lack of top-line expansion, it seems few have noticed the groupâs improving profitability profile.
With management successfully expanding margins, earnings and free cash flow in its latest quarterly results surged by 24% and 19% respectively. And combining this with its falling share price has placed its price-to-earnings ratio at an unusually cheap 11.5.
Having said that, despite owning the popular mobile payment service, Venmo, for over a decade, the company’s consistently struggled to monetise the platform.
At the same time, the rise of other competing fintech solutions for consumers and businesses alike is making it increasingly harder to acquire new engaged users while simultaneously putting pressure on take rates.
Nevertheless, with good execution and continued profit expansion, PayPal could eventually find itself back in investors’ good books, especially if Venmo finally starts making a meaningful contribution. Thereâs obviously no guarantee, but at such a cheap valuation, itâs a risk Iâm carefully considering. And itâs not the only S&P 500 stock on my radar right now.
The post Is it madness to buy S&P 500 stocks now? appeared first on The Motley Fool UK.
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Zaven Boyrazian has positions in PayPal. The Motley Fool UK has recommended PayPal. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
