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The New York Stock Exchange on Wall Street in New York City. Kylie Cooper/Reuters
2026-02-03T19:25:45.767Z
- US stock market valuations are high, but Piper Sandler analysts don’t expect this to change in 2026.
- High margins, tight credit spreads, low oil prices, and low inflation support valuations, they say.
- A "sustained reversal" in any of the four trends poses a risk to US stocks.
As the S&P 500 trades near record highs, Piper Sandler analysts highlight four key supports to valuations, noting that "a sustained reversal in any of these …
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You’re currently following this author! Want to unfollow? Unsubscribe via the link in your email.
The New York Stock Exchange on Wall Street in New York City. Kylie Cooper/Reuters
2026-02-03T19:25:45.767Z
- US stock market valuations are high, but Piper Sandler analysts don’t expect this to change in 2026.
- High margins, tight credit spreads, low oil prices, and low inflation support valuations, they say.
- A "sustained reversal" in any of the four trends poses a risk to US stocks.
As the S&P 500 trades near record highs, Piper Sandler analysts highlight four key supports to valuations, noting that "a sustained reversal in any of these trends would be a potential risk for the market."
Despite some worries on Wall Street that the US stock market is overvalued, the analysts don’t expect valuations to move much in either direction in 2026. "Our view is that multiples stay higher for longer," they write.
However, Piper Sandler said four factors are propping up elevated valuations, and if any of them break, it could trigger a valuation collapse.
The analysts note that valuation shouldn’t be used as a tool to time the market, but rather a "condition of the risk perceived by investors." Charles Schwab recently underlined this point, noting that while "valuation is a horrible market-timing tool," investors can think of high valuations as a way of knowing if the market is vulnerable to shocks.
Here are the four things that Piper Sandler sees reinforcing high valuations:
High margins
Current high equity valuations reflect high operating margins, Piper Sandler said. Operating margin growth, which measures the share of sales left after operating expenses, signal improved efficiencies.
High margins are largely driven by tech. Apollo chief economist Torsten Sløk highlighted that in the past 20 years, "all of the increase in the S&P 500’s operating margin has come from tech‑related sectors."
S&P 500 margin growth is coming from tech companies. Apollo/Torsten Sløk
AI enthusiasm has not only boosted markets, but is also expected to boost productivity and operating efficiency, supporting high margins. "Technology is steroids for margins," T.Rowe Price global multi-asset head and CIO Sébastien Page said, nodding to the US stock market’s historic outperformance compared to global markets.
Tight credit spreads
Credit spreads are "at historically-low levels," Piper Sandler said, explaining that tight credit spreads support equity valuations.
Tight credit spreads mean corporate borrowing costs are low. It refers the "spread" between the rates lenders charge companies and a benchmark like Treasury yields.
Janus Henderson Investors’ portfolio managers Brent Olson and Tom Ross said that credit spreads could hold tight, highlighting the period of the mid-2000s and late-2010s when spreads hovered near historically low levels. They flagged a strong global economy, additional Federal Reserve interest rate cuts, corporate bond scarcity relative to government offerings, and updated corporate ratings as reasons spreads should stay tight.
The "biggest threat" to the credit gap, in Janus Henderson Investors’ view, is "some shocking economic data" signaling a recession or a spike in inflation, which could translate to a Fed rate hike.
Low oil prices
Oil prices declined in 2025 and, despite seeing an uptick in year-to-date, are still constrained amid forecasts for more supply and uncertain demand.
Piper Sandler compared oil prices to S&P 500 price-to-earnings, to show that relatively low prices support the index’s valuation.
"Lower energy prices have played a key role in recent years in lifting equity multiples," the analysts said. They also highlight that low energy costs contribute to real rates feel lower than Treasury yields suggest.
Low inflation
Piper Sandler credits "waning" inflation as a support to US equity markets, comparing core personal consumption expenditure data, a measure of inflation favored by the Fed, to market performance.
"In the post-Covid world, investors have a heightened sensitivity and fear of inflation," meaning lower inflation offers a "boost" to multiples.
LPL Financial research shows that "the highest stock valuations have been observed when inflation, represented by the CPI, is lowest, and vice versa."