Beyond Valuation Concerns: Bill Nygren Reveals Why Market Opportunities Still Abound in Today's S&P 500

The Paradox of Rising Prices and Elevated Valuations

Since bottoming out in October 2022, the S&P 500 has delivered exceptional returns that initially seemed paradoxical. The index surged 26% during 2023 and continued its momentum with a 25% gain in 2024. Even with recent volatility in 2025, it has managed a roughly 14% return year to date—translating to an impressive 80% total return spanning less than three years.

However, this stellar price appreciation has outpaced earnings growth considerably. Today, valuation metrics paint a sobering picture. The CAPE ratio has reached the 40 mark for only the second time in recorded history. The forward price-to-earnings multiple sits at 22.6, a level rarely observed since the tech bubble burst. Meanwhile, the Buffett Indicator has hit record heights, signaling potential overvaluation across the broader market.

On the surface, this suggests the entire index has become prohibitively expensive for new investors seeking entry points.

Yet Bill Nygren Sees a Different Picture

Despite these macro concerns, Bill Nygren, the seasoned investment strategist at Oakmark Capital, maintains a contrarian view. He argues that identifying worthwhile opportunities in today’s S&P 500 is entirely feasible—comparable to the possibilities available seven years ago when valuations appeared far more reasonable.

The secret lies in looking beyond the headline numbers.

Understanding Market Composition Shifts

The S&P 500 has undergone a dramatic structural transformation in recent years. The Megacap-8 companies have grown from roughly 15% of the index’s total market capitalization in 2018 to approximately 33% currently. More striking still: the top 10 companies now represent nearly 40% of the index’s value, with most being high-growth technology firms commanding premium valuations.

These tech giants admittedly justify their elevated multiples through genuine earnings growth. Their dominance, however, has mechanically inflated the overall index valuation, creating a false impression that all 500 constituent stocks share similar valuations.

This is where perception diverges from reality.

The Hidden Opportunity Within the Index

Nygren emphasizes a remarkable statistic that few investors recognize: despite the index’s average valuation jumping from mid-teens to mid-20s multiples over seven years, the sheer number of undervalued stocks has remained stable. Seven years ago, approximately 150 stocks within the S&P 500 traded below 14 times earnings. Today, that number stands virtually unchanged at around 150 stocks.

This persistence of value opportunities suggests that savvy investors employing rigorous fundamental analysis can still uncover compelling investments where market pricing hasn’t yet recognized the true value proposition.

Where Bill Nygren Currently Identifies Value

The Oakmark U.S. Large Cap ETF (NYSEMKT: OAKM), recently launched by Nygren, reveals his current strategic positioning. The fund’s composition differs markedly from the S&P 500’s structure.

Financial Sector Concentration

Nygren maintains substantial exposure to financial stocks, including positions in Citigroup, Charles Schwab, Bank of America, and Capital One Financial. This positioning reflects his observation that following Silicon Valley Bank’s collapse in 2023, numerous financial institutions traded at valuations approximating half the S&P 500’s average multiple—historically, they’ve traded around two-thirds of the index multiple.

Since mid-2023, the financial sector has delivered robust outperformance relative to the broader index. Yet as of June’s end, financials constituted nearly 40% of Oakmark’s portfolio, indicating that Nygren still identifies meaningful undervaluation in this sector.

Technology Selectivity

Contrary to avoiding all technology exposure, Nygren’s largest holding remains Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), representing over 6% of fund assets. His thesis is sophisticated: Alphabet operates two distinct business segments—a dominant search cash cow alongside “Other Bets,” essentially a venture capital division.

While Alphabet’s forward P/E exceeds 24, removing Other Bets and adjusting for cash reserves reveals that the core search business commands a substantially lower valuation. Market participants systematically undervalue this emerging opportunity set, creating Nygren’s investment thesis.

The Broader Investment Implication

Investment luminaries including Bill Nygren and Howard Marks converge on a singular conclusion: today’s market environment rewards disciplined security selection. The concentration of valuation multiple expansion in a narrow band of mega-cap stocks has paradoxically created opportunities for investors capable of conducting fundamental analysis.

Value investing—identifying stocks trading below intrinsic value—remains a viable approach for generating market-outperforming returns. The current market structure actually amplifies this opportunity, as price dispersion within the S&P 500 has widened meaningfully.

The challenge isn’t identifying that opportunities exist. Rather, it’s possessing the analytical rigor and conviction to capitalize on them when consensus opinion suggests the entire market has become expensive.