To The Moon

What deserves the most attention in the U.S. equity market this week is not the movement of the S&P 500 Index itself, but rather the structural changes taking place within the index.

From a valuation perspective, the S&P 500’s overall price-to-earnings ratio remains at a relatively elevated level. Valuations in information technology, real estate, industrials, health care, and other sectors are all materially above the broader market, indicating that U.S. equities as a whole still lack a clear valuation cushion. From a fund-flow perspective, SPY has recorded cumulative net inflows of approximately USD 21.6 billion since July, but fund-flow divergence across sectors has become increasingly pronounced.

Capital is not simply leaving the equity market; rather, it is being reallocated across different assets. From a market-concentration perspective, the M7 share of the S&P 500’s total market capitalization rebounded in the latest data after a notable decline, while valuation and performance divergence within the group has become highly apparent.

$标普500ETF(SPY)$ $SPYR, Inc.(SPYR)$ $投资组合标普500指数ETF-SPDR(SPYM)$ $NQ100指数主连 2609(NQmain)$ $恒生科技指数(HSTECH)$ $工业指数ETF-SPDR(XLI)$ $金融ETF(XLF)$ $高科技指数ETF-SPDR(XLK)$ $Real Estate Select Sector SPDR Fund(XLRE)$ $公共事业指数ETF-SPDR(XLU)$ $消费品指数ETF-SPDR可选消费品(XLY)$ $健康照护类股ETF-SPDR(XLV)$ $消费品指数ETF-SPDR主要消费品(XLP)$ $Communication Services Select Sector SPDR Fund(XLC)$ $SPDR能源指数ETF(XLE)$ $材料ETF(XLB)$

Therefore, this week’s U.S. equity market can be summarized in one sentence: elevated valuations have not disappeared, but capital is still providing support; the market has not entered a broad-based retreat, yet it is shifting from being “index-driven” to “structure-driven.” Below, we provide a detailed review of U.S. equity-market valuation data.

I. Equity-Bond Valuation: The Equity Risk Premium Remains Thin, Leaving U.S. Equities With a Limited Margin of Safety

To assess U.S. equity valuations, the first question that must be answered is whether equities offer sufficiently attractive returns relative to risk-free assets.

Figure 1. Equity-Bond Yield Spread (S&P 500 earnings yield of approximately 3.26% − U.S. 10-year Treasury yield), July–August 2026 | Data: Investing.com; proprietary calculations

The chart shows that, from July to August 2026, this indicator remained in negative territory overall and recently fell to approximately -1.4%. Based on the figure-note methodology, the S&P 500 earnings yield is approximately 3.13%.

This means that the earnings yield currently offered by the equity market remains below the yield on long-term U.S. Treasuries. Put differently, the “earnings return” investors receive from holding equities is not materially higher than the return available from holding risk-free assets.

This indicator does not, by itself, mean that U.S. equities will decline immediately. A highly valued market can remain highly valued for an extended period, particularly when investors continue to believe that corporate earnings can grow rapidly in the future. However, it reveals an important feature of the current market: U.S. equity gains are increasingly dependent on the delivery of future earnings, rather than on further upward valuation expansion.

$标普500ETF(SPY)$ $NQ100指数主连 2609(NQmain)$ $道琼斯(.DJI)$ $美元指数(USDindex.FOREX)$

Accordingly, with the current equity-bond yield spread still relatively low, the market will be more sensitive to two variables.

The first is corporate earnings. If future earnings growth continues to materialize, elevated valuations can gradually be absorbed through earnings growth. Conversely, if earnings fall short of expectations, valuations lack a sufficient cushion, and the market is more likely to reprice through equity-price adjustments.

The second is interest rates. If the 10-year U.S. Treasury yield remains elevated or rises further, equities will become less attractive relative to bonds. Conversely, a material decline in long-term interest rates could alleviate the current pressure between equity and bond valuations.

Therefore, at the first level of valuation analysis, the core conclusion is that the market is already in a high-valuation environment that is more sensitive to interest rates and earnings.

II. Sector Valuation: High Valuations Are Not Limited to Technology; Elevated Valuations Are Spreading to More Sectors

If the equity-bond yield spread addresses whether “U.S. equities are expensive overall,” sector P/E ratios address “where exactly they are expensive.”

Figure 2. S&P 500 Sector Price-to-Earnings Ratios (TTM) | Data: World PE Ratio

Based on the latest trailing-twelve-month P/E ratios, the S&P 500’s overall P/E is approximately 25.13x. Information technology is the highest at 33.83x; real estate stands at 32.29x; industrials at 29.91x; health care at 29.45x; consumer staples at 26.12x; and consumer discretionary at 25.98x. By comparison, materials, energy, utilities, financials, and communication services have relatively lower valuations, with financials at only 16.75x and communication services at 15.53x.

$工业指数ETF-SPDR(XLI)$ $金融ETF(XLF)$ $高科技指数ETF-SPDR(XLK)$ $Real Estate Select Sector SPDR Fund(XLRE)$ $公共事业指数ETF-SPDR(XLU)$ $消费品指数ETF-SPDR可选消费品(XLY)$ $健康照护类股ETF-SPDR(XLV)$ $消费品指数ETF-SPDR主要消费品(XLP)$ $Communication Services Select Sector SPDR Fund(XLC)$ $SPDR能源指数ETF(XLE)$ $材料ETF(XLB)$

More notably, the industrials sector’s P/E has approached 30x, while real estate has exceeded 32x. This means that elevated valuations are not confined to technology growth sectors in the traditional sense; they have already spread to sectors such as industrials and real estate.

Industrials deserve particular attention. As a typical cyclical sector, a valuation approaching 30x already implies that the market is assigning high expectations for future growth. In other words, the current market is not simply valuing cyclical sectors based on historical earnings; it is paying in advance for future growth narratives. Meanwhile, valuations for financials and communication services are materially below the S&P 500 overall. In particular, the financials sector’s P/E of 16.75x differs substantially from the S&P 500’s 25.13x.

This indicates that relatively clear valuation stratification still exists within the market. However, a “low P/E” does not automatically mean “low risk.” The key question is whether a sector is undervalued because earnings expectations are improving, or whether it is assigned a low valuation over the long term because its fundamentals lack growth.

III. Multi-Cycle Valuation: What Truly Warrants Caution Is That “High Valuation Is Gradually Becoming the New Normal”

World PE Ratio data show that the market’s valuation issue is not only reflected in elevated current P/E ratios, but also in the fact that some sectors appear materially expensive when assessed over longer historical cycles. Among them, information technology currently trades at 33.83x, while industrials are rated Expensive across the 5-year, 10-year, and 20-year horizons.

Figure 3. Multi-Cycle Valuation Assessment of S&P 500 Sector P/E Ratios (5/10/20 years + relative to the 200-day moving average) | Data: World PE Ratio

The valuation risk in U.S. equities is better described as follows: elevated valuations are spreading from a small number of growth sectors to more sectors. However, this does not mean that all highly valued sectors should be avoided. The trend indicators in Figure 3 show that most sectors remain above their 200-day moving averages. Information technology is 20.21% above its 200-day moving average, industrials are 10.27% above, health care is 9.88% above, and the S&P 500 overall is 9.65% above. This indicates that the current market still has strong trend support. In such a market, concluding that the market has peaked solely because P/E ratios are high may be premature; however, completely ignoring valuations would also underestimate the risk of future volatility.

IV. Fund Flows: Broad-Market Capital Continues to Flow In, but Divergence Across Sectors Is Widening

SPY fund-flow data from ETFDB show that, from July 11 to August 11, 2026, SPY’s daily fund flows experienced notable two-way fluctuations, yet cumulative net inflows for the period still totaled approximately USD 21.6 billion. This indicates that the market cannot yet be characterized as undergoing a comprehensive withdrawal of capital.

Figure 4. SPY Daily Net Flows (2026/07/11–08/11; cumulative net inflow for the period: USD 21.60B; unit: USD billions) | Data: ETFDB

If capital were truly entering a systemic risk-off phase, the most important signal would be persistent, one-way outflows from broad-based ETFs. However, SPY is still maintaining cumulative net inflows, indicating that underlying market support remains in place.

Sector ETF fund-flow data from ETFDB show that SPY has received approximately USD 9.01 billion in net inflows since July. The Financial Select Sector SPDR Fund (XLF) has received approximately USD 2.69 billion in net inflows, making it one of the more notable sector ETF inflow destinations. The Technology Select Sector SPDR Fund (XLK) recorded approximately USD 614 million in net inflows, Consumer Discretionary Select Sector SPDR Fund (XLY) approximately USD 524 million, Industrial Select Sector SPDR Fund (XLI) approximately USD 229 million, and Real Estate Select Sector SPDR Fund (XLRE) approximately USD 131 million. On the other hand, the Utilities Select Sector SPDR Fund (XLU) recorded approximately USD 752 million in net outflows, the Communication Services Select Sector SPDR Fund (XLC) approximately USD 502 million in net outflows, and some sectors including consumer discretionary and materials also saw capital outflows.

Figure 5. Latest Net Flows for Sector ETFs (red = net inflow, green = net outflow; unit: USD 100 millions) | Data: ETFDB

Financials have a P/E of only 16.75x, materially below the S&P 500’s overall 25.13x, while also receiving relatively notable capital inflows. This is currently a typical combination of “relatively low valuation + fund-flow support.” By comparison, some sectors already at relatively high valuation levels can still receive capital support, indicating that investors have not fully rotated toward conventionally low-valuation value stocks; rather, they are reallocating across different growth themes. Therefore, the current round of fund-flow behavior is closer to a form of “structural rebalancing.”

V. M7: Concentration Has Not Continued to Rise Unilaterally, but Internal Valuation and Performance Divergence Has Become Apparent

One of the important features of the U.S. equity market in recent years has been the increasing contribution of the M7 to the index. Therefore, changes in the M7 share of the S&P 500’s total market capitalization can be used to observe whether market concentration is changing.

Figure 6. Total M7 Market Capitalization and Its Share of the S&P 500 (past year) | Data: MacroMicro

MacroMicro data shows that, over the past year, the M7’s total market capitalization has broadly remained in a high range of approximately USD 2 trillion, while its share of the S&P 500’s total market capitalization once approached 36%, then declined materially to a low near 32.5%, before the latest data rebounded to approximately 33.5%.

If the M7 share declines while other sectors rise simultaneously, it may indicate healthy “breadth expansion”: market gains are no longer entirely dependent on a small number of mega-cap companies, and more companies are beginning to participate in the advance.

However, if the M7 share declines because capital is leaving market leaders while other sectors cannot genuinely take over through earnings growth, it may indicate that the market’s core driver is weakening. Based on the current data, the situation is closer to a middle ground between these two scenarios: M7 concentration has fallen materially from its peak, but has not entered a sustained one-way decline; meanwhile, individual stock performance within the M7 has already diverged significantly.

VI. M7 Valuation: The Magnificent Seven Can No Longer Be Treated Simply as a Single Group

The latest M7 trailing-twelve-month P/E data show Tesla at approximately 303.35x, Apple at 34.67x, Microsoft at 34.32x, Meta Platforms at 27.43x, Amazon at 21.49x, and Google at 17.17x. Because Tesla’s valuation is extremely high, the chart uses logarithmic compression.

Figure 7. Comparison of M7 P/E Ratios (TTM) (Tesla axis logarithmically compressed) | Data: Tiger Brokers

Tesla is clearly an extremely highly valued asset. Its current P/E is difficult to explain solely through current-period earnings, and the market is effectively pricing in very high future earnings growth in advance. Apple and Microsoft are both in a valuation range above 30x. Compared with Tesla, their valuations are clearly not as extreme, but they are already materially higher than those of Amazon and Google.

If divergence within the M7 continues in the future, simply allocating to the “M7 as a whole” may not be the most effective strategy. What truly needs to be observed is whether the earnings growth of different companies can match their current valuations.

Figure 8  M7 Cash & Equivalents｜Data : opencapital.com

Figure 9  M7 Cash & Equivalents｜Data : opencapital.com

According to OpenCapital data, cash and cash equivalent balances at two U.S. technology-sector e-commerce and cloud-services giants both increased rapidly. Amazon and Alphabet recorded USD 78.213 billion and USD 55.911 billion in cash and cash equivalents, respectively, representing year-on-year growth of 35.5% and 166%, respectively. Changes in cash balances reflect, on the one hand, the two companies’ current cash-generation capacity from operating activities and, on the other hand, their capital-expenditure pace and stage of business expansion. Especially against the backdrop of continued increases in AI infrastructure investment, changes in cash balances can serve as an important indicator for assessing a company’s future capital-allocation capacity.

$苹果(AAPL)$ $亚马逊(AMZN)$ $英伟达(NVDA)$ $微软(MSFT)$ $谷歌(GOOG)$ $特斯拉(TSLA)$ $Meta Platforms, Inc.(META)$

By comparison, Apple’s cash and cash equivalents stood at USD 39.544 billion, representing year-on-year growth of 9.0%, with overall changes relatively stable. Compared with the more notable expansion of cash balances at Amazon and Alphabet, Apple’s cash management exhibits a more stable profile, and its capital allocation is more reflected in shareholder-return arrangements such as share repurchases and dividends. From this perspective, differences in cash changes among M7 companies reflect the different strategies adopted by companies in balancing business expansion, capital expenditure, and shareholder returns.

Figure 10  M7 Cash & Equivalents｜Data : opencapital.com

It is worth noting that Microsoft and Nvidia, which are at the forefront of the AI computing-power investment race, have instead experienced declines in cash reserves. Microsoft’s cash and cash equivalents fell 30.8% year on year to USD 20.935 billion, while Nvidia also recorded a 13.1% decline, with quarterly cash reserves falling to USD 13.237 billion. In the current industry environment, such cash consumption is often directly linked to asset-heavy investment, supply-chain prepayments, and intensive R&D capital expenditure.

 This indicates that, in order to maintain a first-mover advantage in AI, companies are sacrificing part of their balance-sheet liquidity in exchange for long-term technological barriers, while their reliance on subsequent profit inflows to replenish cash shortfalls also rises materially.

By contrast, Tesla and Meta Platforms, which are more sensitive to end-consumer markets, both maintain relatively low cash-reserve ranges of USD 15 billion to USD 16 billion. Tesla recorded negative growth of 2.4%, while Meta recorded a positive recovery of 11.8%.

Taken together with the above financial data, the valuation divergence within the M7 essentially reflects structural differences in cash-generation capacity and capital-expenditure plans. Against a backdrop in which risk-free yields continue to pressure equity valuations, companies able to maintain a high proportion of internally generated cash accumulation provide relatively stronger support for their current elevated valuations through earnings quality; meanwhile, companies that need to rely on ongoing external market expectations to absorb massive capital expenditures will have materially less financial flexibility than cash-rich competitors if earnings growth begins to slow at the margin.

Therefore, the current stock-selection logic within the M7 should not be limited to a simple comparison of forward P/E ratios, but should extend further to continuous monitoring of cash-flow health and capital-expenditure efficiency.

VII. This Week’s Performance: Only Nvidia Outperformed the S&P 500, While the M7 Showed Divergence in Opposite Directions

This week’s return data further validate the divergence within the M7.

Figure 11. M7 Weekly Returns Versus the S&P 500 (benchmark: 0.25%) | Data: Tiger Brokers

The S&P 500 rose 0.25% this week, while among the M7, only Nvidia generated a clearly positive return, rising 3.03%. Apple fell 0.87%, Microsoft fell 2.26%, Amazon fell 1.83%, Google fell 0.18%, Meta Platforms fell 3.38%, and Tesla fell 1.59%.

In other words, while the S&P 500 rose modestly this week, six M7 companies underperformed the index, and only Nvidia clearly outperformed the benchmark. This is materially different from the market characteristic of the past several years, when the “M7 rose collectively.” Meta and Microsoft, in particular, declined 3.38% and 2.26%, respectively, this week.

At the same time, Tesla, despite its extremely high valuation, did not receive the upside premium that highly valued assets typically require. Conversely, although Nvidia’s valuation is not low, it rose 3.03% this week, making it the strongest performer within the M7. This indicates that the market is not simply retreating broadly from highly valued stocks; rather, it is continuing to select among highly valued assets.

Therefore, M7 market behavior this week can be summarized as: “broad pressure, selective stock picking.”

This echoes the reallocation of capital at the sector level. The market has not completely abandoned technology and AI; rather, it is increasingly inclined to distinguish between “companies whose earnings can support their valuations” and “companies that require future narratives to continue delivering.”

VIII. Overall Assessment: Elevated Valuations Persist, but the Market Is Shifting From “Buying the Index” to “Buying Structure”

The core characteristics of the current U.S. equity market can be summarized as follows: elevated valuations are forming a ceiling, capital is rotating, and market structure is diverging. The overall valuation margin of safety is insufficient (the S&P 500 P/E is approximately 25x, while technology, real estate, and other sectors exceed 30x), but capital has not exited: SPY continues to receive inflows, while rotation across sectors is intensifying, with capital moving from areas such as communication services and utilities toward financials.

At the same time, M7 weight has rebounded after an earlier decline, but internal valuation and stock-price performance have become highly dispersed (P/E ratios range from Google at 17x to Tesla at more than 300x, while weekly returns range from Nvidia at +3% to Meta at -3%+), indicating that the market is shifting from broad-based gains and declines toward selective stock picking and structure.

The current U.S. equity market is neither in a comprehensive risk-off phase nor in a one-way bull market; rather, it is a divergent environment supported by capital inflows and earnings expectations. The key focus should be on fund flows and whether earnings can sustain current valuations.

IX. Four Signals to Watch Going Forward

First, whether the equity-bond yield spread remains in negative territory. If the gap between the equity earnings yield and the 10-year U.S. Treasury yield continues to widen, valuation pressure on U.S. equities will increase further; if the spread begins to improve materially, it would indicate that the market’s margin of safety is improving.

Second, whether SPY fund flows undergo a trend change. Current cumulative net inflows still indicate that underlying market support exists, but if the market shifts in the future from “net inflows amid fluctuations” to sustained net outflows, the liquidity environment may undergo a substantive change.

Third, whether the M7 share of the S&P 500 can stabilize at the current level. If M7 weight continues to decline while other sectors can sustain gains, this would be closer to healthy market breadth expansion; if both the M7 and other sectors weaken simultaneously, caution is warranted over weakening core support for the index.

Fourth, whether divergence between valuations and earnings within the M7 continues. Current valuation differences within the M7 are already substantial, and the market is likely to continue shifting from “buying the M7” to “selecting within the M7.” In this environment, it will become more difficult to generate returns simply by relying on broad gains among market leaders, while differences in fundamentals and valuations across individual stocks will become increasingly important.

In summary, the most important change in the U.S. equity market this week is not a complete reversal in market direction, but a change in how the market is pricing assets. In the past, the market was more inclined to assign a high valuation premium to the index and the M7 as a whole.

Now, as valuations continue to rise, the equity-bond margin of safety remains thin, and fund flows begin to diverge, investors are placing greater emphasis on “which sector is more worth buying, and which company can validate its valuation through earnings.”

Therefore, the current market is better understood as “emphasize structure, de-emphasize direction.” At this stage, the most important issue to monitor is whether elevated valuations can continue to be validated by earnings growth and capital inflows.

Chart data sources include Investing, World PE Ratio, ETFDB, MacroMicro, OpenCapital, and Tiger Brokers; please refer to the methodology specified in each chart. This article is for market-data analysis and information organization only and does not constitute investment advice.