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Every year, the stock market has a theme. And I’ve got a pretty good idea of what 2026’s will be.
Simply this: If you buy stocks in the new year, your return will be zilch—at best—for a decade. Maybe more.
Why do I say that? Because the market’s price-to-earnings (P/E) ratio is high by historical standards.
Trouble is, most people are reading this popular indicator all wrong. That disconnect (and the fear it’s starting to cause, which could get worse in 2026) is setting up a nice short-term buying opportunity for us.
Valuation worries are being amplified by this chart from Apollo Global Management, which could easily become the poster child for fearful investors next year:
It comes from Apollo’s chief economist, Torsten Sløk, who notes that the estimated returns we should expect from the S&P 500 over the next decade are zero. This argument is based on that “high” P/E ratio I just mentioned. In other times where we saw a similar P/E ratio, according to Apollo’s analysis, we saw 10 years of flat to negative returns.
This argument has a logical endpoint: You may as well sell, because we’re in for a long period of flat returns at best.
Except the argument is wrong, and it’s not as logical as it looks.
The issue in the chart above is with what each of these dots represents. The S&P 500 as an entity has only existed since 1957, and the first ancestor to the index showed up about 100 years ago. So at most, we should have 10 dots here to cover 10 decades. Instead, we have many more than that because Apollo is using monthly reads of the index to fill out the chart and get more data points.
That’s not a small decision. It means that many of these dots are almost identical, just shifted forward a bit. For instance, the dots for November and December 2015 share 119 out of 120 months of the same data, so the chart looks like it has lots of separate data points, but it really doesn’t.
Statisticians call this “autocorrelation,” and it often results in charts that look like they have conclusive results when they really don’t say much at all.
Plus, let’s not forget that P/E ratios can be “high” for different reasons. Consider, for example, the spring of 2009, when the S&P 500’s P/E ratio shot above 120. I think we know how the following years played out.
Those Who Sold This “High” P/E Missed Years of Gains
An investor who bought the S&P 500 at its highest P/E in living memory earned a 14.5% total return in the next decade, as the index’s P/E dropped to a more “normal” range.
S&P 500 Returns Soared as Valuations Dropped
In this case, the logic of “Don’t buy stocks when P/E ratios are high” doesn’t work. That’s because—and this is the real takeaway—P/E ratios can jump because prices get too high, sure. But they can also soar when the “E” part of the equation, earnings, slump, as they did in early 2009.
The real question, then, is “Are companies growing profits now?” The answer is yes.
In 2025, US companies saw a 12.1% rise in earnings per share from a year ago. This suggests stock prices should rise at least 12.1% just to maintain the same P/E ratio.
But since earnings growth is surging (an 11% rise in 2024, up from 1.1% in 2023 and 4.1% in 2022), and since revenue growth is unusually high (up 7% for 2025), we should see more than 12.1% yearly gains. That’s exactly what we’re seeing now. It wouldn’t be surprising if we keep seeing this in the future.
Flawed Logic Can Still Crash Markets
Nonetheless, most people put more weight on the “P” than the “E” in “P/E ratio,” so we should expect Apollo’s chart to be replicated, and even take hold in investors’ minds. If that happens, we should be cautious and ready to buy when others sell.
That’s why I’m starting to like funds like the Nuveen NASDAQ 100 Dynamic Overwrite Fund (NASDAQ:QQQX). This one is a nice, cheap 8%-paying hedge against uncertainty. It sells covered-call options, or the opportunity to buy its stocks—the tech-focused names in the NASDAQ 100—at a fixed future price and date.
No matter how these trades play out, QQQX keeps the fee, or “premium,” it charges for this right. Plus, its focus on the big-cap tech stocks of the NASDAQ also means this index tends to have higher volatility when markets get scared, juicing payouts further.
This strategy generates more premium cash in volatile markets. That’s the opposite of what we’re seeing now, as the VIX—the so-called “fear indicator”—remains low.
Market Stays Calm, Despite Investor Fears
In other words, we have a relatively calm market as I write this. That, in turn, means options are selling for cheaper than normal. And unusually cheap options compound the discounts to NAV on option-selling funds like QQQX. Right now, the fund’s discount is at a multi-year low.
Calm Markets Put QQQX on Sale
We saw that discount fade a bit in April, when volatility spiked, only for it to drop back to double-digits as markets remained calm and stocks steadily gained.
But if the narrative behind Apollo’s chart catches on, it could narrow that discount again, driving gains and bolstering QQQX’s 8% dividend. That possibility alone makes the fund a nice hedge against a market panic in 2026.
Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, "7 Great Dividend Growth Stocks for a Secure Retirement."