In this video, Brendan Malone continues Greenrock Research’s educational series by addressing a pressing concern in today’s capital markets: the historically high valuation of U.S. equities. Using historical market data and valuation models, Brendan explores what these elevated prices might mean for long-term investors — and how cash flow strategies like dividend investing can provide stability in uncertain times.
At the start of 2025, U.S. stocks are trading at a price-to-sales ratio of 3.15x, one of the highest readings in history. In fact, we’ve only seen markets sustain valuations above 3x over the past year — a sign of just how frothy the current environment may be.
This raises a fundamental question for investors and advisors:
What tends to happen when stocks start at such high valuation levels?
According to Brendan, two outcomes are historically possible:
The market corrects as valuations become unsustainable
Strong economic momentum continues pushing prices higher — at least for a while
But regardless of which direction markets take in the short term, history suggests that long-term caution is warranted at current levels.
To understand what may lie ahead, Greenrock draws comparisons to past market cycles:
In 1998–1999, despite already high valuations, the S&P 500 delivered a total return of over 55% across two years.
But from 2000–2002, the bubble burst — with the market falling three consecutive years, and a $100 investment shrinking to just $62.39 by 2002.
“Valuations play a major role in long-term returns — but almost no role in short-term outcomes.”
This quote captures one of the most important takeaways: while market timing is hard to get right, understanding starting valuations helps set expectations for the decade ahead.
Greenrock uses two primary models to frame long-term return expectations:
Looking at 10-year returns following entry at today’s valuation levels, projections suggest a -5% annualized return for the S&P 500.
Research Affiliates, a respected California-based investment firm, projects 3.6% annualized returns for domestic large-cap equities over the next 10 years.
Neither outlook meets the return objectives of most long-term investors.
So where can RIAs turn when core equity indices may underperform?
Greenrock points to its high and growing dividend portfolio, which historically offered stronger outcomes during stagnant equity decades. For example:
From 2000 to 2009, the S&P 500 compounded at -0.95% annually
Over the same period, Greenrock’s dividend strategy compounded at 7.74%
A significant portion of that return came from cash flow, not just price appreciation
“Cash flow is a great thing.”
Greenrock’s dividend strategy delivered reliable yield and growth, making it a powerful option when market returns falter.
No one knows for sure. But as valuations remain historically elevated, the case for defensive positioning and consistent income strategies strengthens.
If your RIA firm is looking to navigate this environment with greater clarity and confidence, Greenrock is here to help.