FAANG SCHMAANG: Don’t Blame the Over-valuation of the S&P Solely on Information Technology

GMO

Anna Chetoukhina, Rick Friedman

Research

7 Pages

GMO examines whether the S&P 500’s rich valuation can really be blamed on FAANG dominance and rising technology exposure. The paper argues nearly every sector looks expensive versus history, with the index still 39% overvalued even after adjusting for changing sector composition.

Key Takeaways

Sector Shift Limits: IT and Health Care rose from 15% to 38% of the S&P 500 since 1979, yet the index still screened 39% overvalued.
Valuations Broadly Elevated: Financials, Utilities, and Consumer Discretionary traded at premiums of 95%, 80%, and 58% versus long term median valuations dating back to 1970.
International Gap Persists: The S&P 500 traded at 27.3x P/E 10 versus 20.7x for MSCI EAFE, maintaining a 26% premium after sector adjustments.
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