SPY, VOO, IVV: The S&P 500’s lost decade may already be priced in
With the S&P 500 roaring to record highs this year, Apollo chief economist Torsten Slok warns that the benchmark could be headed for a lost decade of virtually zero returns.
Slok’s analysis flags the S&P 500’s stretched forward price-to-earnings ratio, a level that history suggests often precedes a decade of flat or near-zero real returns.
In practical terms, investors who buy stocks at current valuation levels shouldn’t expect meaningful long-term gains, as future returns may be limited by multiple compression rather than earnings growth.
Such a bleak projection would be a stark departure from the prevailing market narrative, which has been driven this year by dominant technology themes like artificial intelligence and data centers.
The implications would be far-reaching for the vast majority of U.S. investors, who hold exposure to the S&P 500 primarily through index funds and ETFs.
According to industry data, more than $20 trillion in assets are indexed or benchmarked to the S&P 500 alone, underscoring how central the gauge is to both retail and institutional portfolios.
Among the largest vehicles tracking the index are the Vanguard S&P 500 ETF (VOO), the iShares Core S&P 500 ETF (IVV), and the SPDR S&P 500 ETF Trust (SPY), which has historically been one of the most heavily traded funds in the world.
If Slok’s outlook plays out, it would challenge long-held assumptions about passive investing returns.
S&P 500 concentration risks
Slok’s analysis appears less surprising when viewed through the lens of the stock market’s growing concentration, with a small group of mega-cap technology companies driving an outsized share of gains.
In 2023 and 2024, the so-called “Magnificent Seven” — Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla — accounted for more than half of the S&P 500’s total returns.
Those seven companies now make up more than one-third of the index’s market capitalization.
Much of their recent growth has been tied to the artificial intelligence narrative, reflecting massive investments in chips, cloud infrastructure, and data centers.
That concentration leaves the broader market increasingly exposed to any disappointment in AI-driven growth expectations.
Some analysts have already raised concerns that data center construction is expanding faster than demand, warning that builders may need to generate roughly $480 billion in annual revenue to justify current investment levels.
By comparison, AI-related revenues today fall well short of that threshold, raising the risk that capital spending assumptions prove overly optimistic.