Valuations are often cited as the market’s biggest risk today. But context matters.

As you can see from the chart below, the composition of the S&P 500 has changed dramatically over the past 60 years. In 1962, energy, industrials, and materials made up 43% of the index. Today, they represent closer to 15%. Meanwhile, technology and communication services have grown from 17% to nearly 39%.

Source: Fidelity Investments. Data as of Sep 30, 2025

That shift alone explains much of today’s higher price-to-earnings multiples. Technology and communication companies have, for the most part, traded at higher valuations, and for good reason. Their margins, scalability, and return on capital are generally structurally superior to most traditional cyclical businesses.

So while headline valuations look elevated, the market itself is simply of higher quality than it used to be. Today’s market isn’t expensive because investors are irrational, it’s expensive because the business mix is better!

I have also included a piece from our CIBC Economic team entitled “Patience for this patient”.

As always, if you have any questions, please feel free to give us a call at any time.

Have a great weekend.

Milan