The forward PE ratio of the S&P 500 has soared to 22.2x, which is significantly above the 5-year average of 20.0x and far exceeds the 10-year average of 18.8x.

Breaking down FactSet data, before the pandemic, this index's forward PE generally hovered between 15-18x, only briefly spiking to 23x during the extreme easing in 2020. Now, with valuations approaching that level again, the safety margin is indeed quite tight.

But there's an interesting phenomenon—valuation increases are mainly concentrated in high-growth sectors like technology and consumer discretionary, where the forward PE approaches 28x. In contrast, traditional industries like energy and financials are only around 16x. In other words, although the overall index looks somewhat expensive, the internal "expensive and cheap" differentiation is quite stark, leaving plenty of room for funds to rotate from high-valuation leaders to undervalued sectors.

The key point is that profit growth in 2025 is still expected to maintain a 14-15% level. Under these circumstances, the index currently appears to be in a stage of "somewhat expensive but not yet a bubble."

Rather than heavily betting on passive index funds to continue rising, it's smarter to—moderately reduce the weight of high-valuation tech stocks, and shift towards undervalued assets like financials, energy, and small-cap value stocks. This approach can both hedge against 10-15% valuation corrections and seize excess returns through structural rotation.