In the second half of November, the narrative of the market began to focus on investor concerns of a market bubble. A bubble would imply that stock market gains were unjustified and fueled by investors that bought stocks without any regard to the price. When this happens, the rise in prices outpaces the rise in company earnings (profits) and as a result the market’s valuation  will increase. Valuations are reflected by the market’s Price/Earnings Multiple, and therefore a bubble should go hand-in-hand with rising multiples.

However, the chart below breaks down exactly where stock returns have actually come from in 2025. The takeaway is clear: almost the entire year-to-date gain in the S&P 500 has been driven by earnings growth, not rising multiples.

- A Recent Look at the Data: Year-to-date, the S&P 500's total return is 15.32%

- Measuring Return Drivers in 2025: The chart shows the S&P 500's total return year-to-date broken down into the contribution from three segments: earnings growth, P/E multiple, and dividends.

- Investment Implications: Breaking down returns this way helps show whether market gains are being supported by underlying fundamentals or shifts in valuation.

Despite headlines about stretched multiples, the P/E ratio is nearly flat this year. That means the market’s progress has come from companies delivering stronger earnings (dividends added a small boost). In the long run, it has been the quality and consistency of earnings growth that justifies higher stock prices. Hence, we feel comfortable with the gains in 2025 as the market seems to be rising for all the right reasons.