This Is the Most Expensive Market in Decades. Is It Really Safe to Invest Right Now?

It doesn't feel good to invest money when the assets you're buying seem to be priced for perfection. The Shiller price-to-earnings (P/E) ratio, which values stocks baaed on 10 years' worth of inflation-adjusted profits, was at 42 on Sept. 2 -- nauseatingly close to its late-1999 record high of 44. By October 2002, the Nasdaq had fallen by 77%. And now, the Buffett indicator -- which expresses total stock market capitalization as a percentage of gross domestic product -- is at a record high of 234%.

At times like this, even buying something heavily diversified, like the SPDR S&P 500 ETF Trust (NYSEMKT: SPY), can seem risky. But investors looking at entering the market with a sense of dread are making a lot of assumptions that might not be true, so let's take a closer look and see if buying stocks right now is likely to be a winning move or not.

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Earnings growth can eventually correct bloated valuations

Among many other possible approaches, a stock's valuation can be viewed as its price relative to its expected earnings or as its price relative to its recent earnings. On Aug. 31, the forward 12-month P/E ratio for the S&P 500, which is calculated based on the profits that the analysts expect the companies that compose the market to bring in over the next year, was 19.6, which was below the five-year average of 19.9. The backward-looking P/E, tracking profits that were already booked over the prior 12 months, was 26.4.

Shiller's P/E calculation is different in that it tries to account for good or bad business cycles by using a decade of earnings data, which has the effect of making fast profit growth look expensive even if the current year's profits make for a reasonable price. FactSet's consensus estimate among analysts suggests that S&P 500 earnings will grow at a pace of 31.2% in 2026 -- that's incredibly fast -- which, obviously, a backward-looking calculation cannot see.

FactSet reported that the market exhibited a 52% earnings growth rate for the second quarter of 2026. That figure is based heavily on the earnings of Alphabet and Amazon, both of which reported massive growth as a result of booking unrealized gains on investments. Still, excluding those two companies, earnings rose 33.8% in the quarter.

So the market is indeed expensive right now, but the elevated prices are factoring in the prospect of rapid growth in the near term, which investors are broadly willing to pay for in part because that rapid growth has materialized consistently in a concentrated group of high-performing names. And, as heightened as expectations may be, the market is actually slightly less richly valued on the basis of the anticipated growth.

With enough time, and with enough earnings growth along the way -- and perhaps with some slower share price appreciation, too -- these high valuations can decline to more reasonable levels without there ever being a crash.

So is it safe to invest?

It's safe enough to continue to invest right now. Aside from the fact that earnings growth is white-hot at the moment, buying when stocks are expensive has historically tended to be a profitable strategy.

According to RBC Global Asset Management, of 1,325 all-time highs in the S&P 500 from 1950 to August 2025, after one year, only 9% of cases saw the index drop by more than 10% from the high-water mark. Across every five-year window following an all-time high, the index has never finished down more than 10%. Per Hartford Funds, 76% of the stock market's best days between 1996 and 2025 occurred during a bear market or the first two months of a bull market, and missing the 10 best days over that stretch would have cut an investor's returns in half. Staying sidelined and not investing means missing out on so much growth that it's not worth doing.

If you're still skittish after learning all of these pieces of information, there's another trick which could help you to keep investing.

Don't buy your entire position in a stock all at once.

Instead, spread your purchases out over a few weeks or months. That way, even if you're buying expensive shares, you'll give your capital more time for earnings growth to materialize, and you'll potentially get a bargain on some of your purchases, too.

Alex Carchidi has positions in SPDR S&P 500 ETF Trust. The Motley Fool has positions in and recommends Alphabet and Amazon. The Motley Fool has a disclosure policy.