Recent rotation has helped resolve some of U.S. large cap stocks’ valuation excesses, but risks remain to the downside for U.S. multiples. Large cap growth’s sales multiple is still near its all-time high, at about 6X, and growth’s earnings multiple may still be at least 15% too rich to value. The eye-popping growth premium is not the only evident excess in stocks, however, for now large cap value stocks are also trading very near all-time high valuations. These very high expectations have started to weigh on U.S. large cap growth stocks and may remain a problem for U.S. large cap returns overall in the near term.
U.S. large cap growth stocks have underperformed value counterparts by 11% so far in 2026 and 18% since their relative peak in October of last year, helping to resolve some of the abnormally large valuation premium that developed for growth in 2025. However, the premium for large cap growth stocks is still well above long term norms, even after the style’s recent correction. At a forward P/E of 25.7X, Russell 1000 growth trades 7.5X above Russell 1000 value stocks’ P/E of 18.2X. The growth premium was more than 75% in October, when the growth index touched a multiple of 31.1X, nearly equivalent to its 2021 absolute peak. On average since the end of the tech-bubble and until the pandemic (2003-2019), Russell 1000 Growth traded at a 25% premium to its value counterpart, but the current P/E premium is still 40%.
The price-to-sales ratio shows an even larger valuation extreme for growth, and a bigger valuation gap between growth and value stocks. Growth stocks still command a premium to value that is even higher than either the tech bubble or the 2021 peak, with the growth index trading nearly 6X sales, 4X above its value counterpart. At the peak in the tech bubble, the Russell 1000 growth index P/S ratio was 5.5X, or 4.2x turns above the value ratio of 1.3X. And in the 2003-2019 period, the growth index traded at an average premium of 0.76X to large cap value stocks. Growth stocks may face a reasonably high probability of valuation compression, particularly if any sales disappointments emerge.
Though the growth premium is still most bloated, it is worth noting that value stocks are also trading at a premium to pre-pandemic norms. Current P/Es of 25.7X for Growth and 18.2X for Value are both well north of long-term averages, and price-to-sales ratios for both growth and value are very near long-term peaks. Excluding the tech bubble and the post-pandemic period, the Russell 1000 Growth index has traded at an average P/S multiple of 2.0X, or 0.7X above value’s average multiple of 1.3X.
Herein lies the potential problem for U.S. large cap stocks – it may be tough for valuations to press much higher unless companies can positively surprise elevated expectations. This may limit price growth to the rate of growth of fundamental improvements. Growth stocks’ premium is extreme and thus may be most at risk of correcting if disappointments emerge, but it also may be unlikely that value stocks can re-rate much higher to offset any broad index drag from growth multiples. High multiples overall may limit U.S. large caps price appreciation potential, as they imply abnormally strong fundamentals are already embedded in expectations. Given such extended valuations, large cap stocks should be expected to rise, at best, at the pace of earnings growth.
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