MW For the first time ever, an S&P 500 ETF has over $1 trillion in assets. Here's why that should worry you.
By Brett Arends
Welcome to the age of trillions
Repeat after me: This is not a bubble.
Vanguard's S&P 500 ETF VOO has become the first exchange-traded fund, or indeed the first mutual fund of any kind, to hold more than $1 trillion in assets.
The low-cost index fund has seen its assets balloon by a stunning 50% just in the last year, according to Dow Jones Market Data, with half the gains coming from the rise in the value of the stock market and half from new fund sales. The Vanguard ETF, which was launched in 2010, surpassed two much older rivals: The iShares Core S&P 500 ETF IVV, which was launched in 2000 and now holds about $850 billion, and the OG, the State Street SPDR S&P 500 Trust SPY, which was launched way back in 1993 and now has about $790 billion.
"We can confirm that [the Vanguard S&P 500 ETF] crossed the $1 trillion threshold for the first time earlier this week," a company spokesman tells me.
Yet another remarkable milestone is in the rearview mirror. We have become used to companies valued at $1 trillion since some of the tech giants soared past that level recently. And we are acclimatizing ourselves to the idea that Elon Musk could become the world's first trillionaire. (And it is apparently unremarkable that Musk's SpaceX $(SPCX)$ venture, which is currently losing $2 million an hour, is being valued at around $1.75 trillion.)
Welcome to the age of trillions.
Does this matter to us investors? At one level, not really. These are just numbers. Consumer prices have almost exactly doubled in the U.S. since the start of the millennium, so today's $1 trillion would "only" be worth about $500 billion in 1999 dollars.
But at another level, this matters a great deal. These thresholds are yet more signals of how far stock prices, and especially the S&P 500 SPX, have risen in recent years. The U.S. large-cap index has quadrupled your money in 10 years, a compound annual return of 15.6% - or 11.9% a year in "real," inflation-adjusted terms.
This is not normal.
Over the past century, and measuring using calendar year-ends, the average figure for 10-year returns on the S&P 500 is just 6.94% a year. The S&P 500 has done better than the past decade only about 18% of the time.
It's often surprising how few people - including not only investors but also Wall Street salesmen - actually seem to understand stock prices. A stock is simply a claim on a company's future income. The more you pay for a stock, the lower your subsequent returns will be. Mathematically, a higher stock market isn't a sign we should be more enthusiastic about stocks but a sign we should be less enthusiastic.
To assume that future returns will be high because recent returns have been high would be like driving a car down the road while looking only in the rearview mirror.
Two brilliant - and quite different - economists recently made this point far better than I could. One is Dean Baker, co-founder of the Center for Economic and Policy Research, a think tank. He points out that for most of the past century, stocks were far cheaper in relation to company profits, or earnings, than they are today. The so-called P/E, or price-to-earnings, ratio was often in the midteens. And that, he points out, made it much easier for stocks to generate high returns. Today the P/E level is about 30, "and the economy is projected to grow roughly 2.0 percent a year going forward," he wrote recently. "In that world, the only way to generate the historic 7% real rate of return is with an ever-rising price to earnings ratio."
(The S&P 500 is currently trading at 28 or 29 times the earnings of the past 12 months. While it is a much lower 21 times the forecast per-share earnings of the next 12 months, it is also an eye-wateringly expensive 41 times earnings according to the measure popularized by Robert Shiller, the Nobel Prize-winning Yale economist, which looks at average earnings over the past decade adjusted for inflation.)
To generate typical real returns of 7% a year from here, Baker calculates, the S&P would have to rise to levels that are effectively impossible. The P/E ratio would have to rise above 90 over the next 18 years, and to about 2,000 by the time a newborn child today would expect to retire, in 67 years' time.
Good luck with that.
Baker reckons investors will probably earn real returns from here of less than half that, averaging 3% a year.
The second economist is the great retirement guru (and MarketWatch columnist) Alicia Munnell. Munnell recently retired as the Peter F. Drucker professor of management sciences at Boston College's Carroll School of Management and was the founder of the college's Center for Retirement Research.
Munnell, along with colleagues Anqi Chen and Jean-Pierre Aubrey, point out that today, the U.S. stock market is already valued at more than 200% of annual U.S. GDP, or gross domestic product. To generate historical normally real returns of about 6.5% a year from these levels, they calculate, the market would have to grow to about 13 times GDP by 2100.
The devil here isn't in the details but in the big picture. Anyone can quibble about numbers and calculations around the edges. Maybe a higher P/E than the historic average is justified by technology or artificial intelligence. Maybe the economy will grow faster than expected for similar reasons. And so on. But those will only affect things partially. They will not and cannot change the overall story.
So the news that an S&P 500 index fund has become the first trillion-dollar ETF, with two other S&P 500 index funds close on its heels, is another sign of a stock-market mania that, mathematically, pretty much cannot continue as it has been doing.
The U.S. stock market has never been remotely close to 13 times GDP. It's an obviously absurd figure. Jennifer Nash at Advisor Perspectives shows that even the current level of 230% of GDP is far above historic averages. For most of the period from about 1974 to 1990, it was less than half GDP - one-quarter of today's level.
Warren Buffett in 2001 famously said that comparing the stock market's value to GDP was one of his favorite rules of thumb for working out whether it was overvalued or undervalued. He thought the stock market was cheap when it was below 100% of GDP - less than half today's level.
Yet to match recent returns, the stock market has to keep rising much faster than GDP.
None of this means a "crash" is imminent or even likely. It might not even be enough to sell the S&P 500. But it should be enough to make you cautious. Meanwhile the S&P 600 SML, which tracks small-company stocks, is less than 16 times forecast earnings, which is roughly in line with where it's been for the past quarter-century. And the FactSet index of non-U.S. stocks is around 16 times forecast earnings, also roughly in line with its average levels this millennium.
Stock-market forecasts end up making fools of us all, but don't be surprised if the S&P 500 fails to produce the outlandish returns of the past 10 years, or if it underperforms other, less expensive indexes.
-Brett Arends
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 05, 2026 15:59 ET (19:59 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments