How high are US stock valuations right now? A quick look at some data makes it clear. The S&P 500's current P/E ratio of 22 ranks in the 83rd percentile over the past 10 years, and in the 92nd percentile over the past 30 years — in other words, the current valuation level has only appeared 8% of the time in history.

The problem is, this high valuation is no longer exclusive to tech stocks. Out of 11 major sectors, 9 have valuation percentiles exceeding 70%. High valuations are spreading like a virus from the tech sector to the entire market. This is completely different from the "tech concentration overvaluation" during the 2000 internet bubble; risk is much more diversified and much more hidden.

The two most dangerous sectors have each lit up red lights. The industrial sector's P/E ratio has reached 25, which is at the 92nd percentile over the past 10 years and the 96th percentile over the past 30 years — approaching historical extremes. Yet, in the fourth quarter, profits in this sector actually declined by 0.5%, creating a deadly combination of "negative growth with extreme overvaluation." What about the consumer discretionary sector? Even more exaggerated — a P/E of 30 is the highest among all sectors, with an absolute valuation percentile of 90%. Profits have been declining for four consecutive quarters, yet stock prices are still rising, as the market bets on a strong rebound in 2026.

Even sectors that seem cheap are not really cheap. Real estate and financial sectors are indeed discounted compared to the S&P 500, with valuation percentiles of only 7% and 14%, mainly due to being squeezed by high interest rates. But don’t be fooled by the "cheap" label — their absolute P/E ratios are still 17, higher than the long-term historical average of 15.

The most painful part is, no sector is truly cheap enough to serve as a safety cushion. Once market sentiment reverses, valuations across all sectors will face a round of compression, and that will be truly painful.