Valuations across major U.S. equity benchmarks have retraced to the lower bounds of their recent trading ranges, according to Scott Rubner, Head of Equity and Equity Derivatives Strategy at Citadel Securities. His observations point to a re-pricing of equities that, historically, has preceded favorable short-term returns.
Rubner notes the S&P 500's forward price-to-earnings ratio currently sits at roughly 19.7 times. That level is below the index's five-year average of 20.1 times and ranks in the 6th percentile of its one-year range, a nadir last seen at April 2025's Liberation Day. The strategist highlighted historical patterns showing that when the S&P 500 forward P/E drops under the 20 times mark, forward returns have tended to be positive. Since 2020 there have been 13 such episodes, with an average 30-day return of 3.5%, a median 30-day return of 6.4%, and positive returns in 75% of those instances.
On the Nasdaq 100 side, forward valuations have also fallen. The Nasdaq 100 forward P/E is about 21.7 times, beneath its 10-year average of 22.8 times and approaching the lowest readings observed over the last year. Measured against historical ranges, the ratio occupies the 2nd percentile on a one-year basis and the 13th percentile over five years.
The valuation gap between the Nasdaq 100 and the S&P 500 has narrowed substantially. The forward P/E spread between the two is approximately 2.0 times, the tightest level in more than seven years since December 2018 and within the bottom quintile of its 10-year range. The spread closed below 2 times on Friday. Rubner cites that, over the past 20 years, the spread has traded below 2 times on 30 occasions. In the 30 sessions following those occurrences, the Nasdaq 100 posted average and median returns of 2.7% and rallied 76% of the time, while also reliably outperforming the S&P 500 across the same window.
Volatility measures paint a mixed picture. Although implied volatility remains elevated relative to longer-term norms, there are signs of slight compression. The at-the-money 1-month implied volatility for QQQ is positioned in the 85th percentile of its one-year range, down from the 93rd percentile recorded on Friday.
Within large-cap technology stocks, Rubner points to notable declines in 25-delta call implied volatility for some names. NVIDIA's 1-month 25-delta call implied volatility is in the 3rd percentile of its one-year range. NVDA accounts for about 8% of SPY, and by contrast the 1-month 25-delta call implied volatility for SPY sits in the 90th percentile of its one-year range. Similar low-percentile readings for 1-month 25-delta call implied volatility appear across other technology issues: Tesla is in the 6th percentile, Palantir in the 10th percentile, Google in the 20th percentile, and Broadcom in the 25th percentile of their respective one-year ranges.
Rubner's summary suggests that the combination of lower forward P/Es and pockets of compressed option-implied volatility in major technology names has historically coincided with favorable short-term returns, though volatility metrics overall remain elevated relative to recent norms. The data highlights differences in how option markets are pricing risk across individual large-cap technology stocks versus broad-based ETFs and indices.
Key points:
- The S&P 500 forward P/E is near 19.7 times, below its five-year average and in the low end of its one-year range.
- The Nasdaq 100 forward P/E has fallen to about 21.7 times, below its 10-year average and near one-year lows, compressing the Nasdaq-S&P forward P/E spread to roughly 2.0 times.
- Implied volatility is uneven: QQQ 1-month at-the-money implied volatility sits in the 85th percentile of its one-year range, while 1-month 25-delta call implied volatility for several major tech names is near the lower end of their one-year ranges.
Risks and uncertainties:
- Volatility remains elevated in absolute terms despite slight compression, creating uncertainty for short-term market moves and option-based strategies - this affects broad-market ETFs and index-linked products.
- Concentration in large-cap names can amplify index-level sensitivity; for example, NVDA represents about 8% of SPY, and differences in option-implied volatility between NVDA and SPY indicate uneven risk pricing across the market.
- The narrowing valuation spread between the Nasdaq 100 and the S&P 500 could reverse, and prior historical patterns do not guarantee future performance - technology and broader equity sectors would be impacted if the dispersion expands again.
Note: This article reports observations attributed to Scott Rubner and does not add new numerical data beyond those summarized here.