Mag 7 extreme valuation dispersion

The most expensive stocks in the market trade at an extreme valuation premium to the rest.

This extreme valuation dispersion indicates opportunity in small and mid caps.

Right now, forward P/E ratios over time (daily):

• Mag 7 (pink dotted): ~24x
• S&P 500 large cap (blue): ~20x
• S&P 400 mid cap (red): ~16x
• S&P 600 small cap (green): ~15x

Despite the pullback, the Mag 7 still trade at a ~60% valuation premium to small and mid caps.

This is:

• Near historical extremes
• Comparable to late 1990s / 2020–2021 peaks

Small & mid caps are still “recession-priced”:

• Trading ~15–16x
• Roughly mid-cycle or below-average valuation

But

• ISM > 50
• the economy is accelerating

Implications

This combination is rare:

1. Economic expansion (ISM > 50)
2. Small caps still cheap
3. Mag 7 / mega caps still expensive

Normally:

• Either everything is expensive (late cycle)
• Or everything is cheap (recession)

👉 Today = dispersion regime

We are at extreme valuation dispersion. Historically, this precedes mean reversion in relative performance

The setup strongly favors:

• Quality cyclicals
• Small/mid-cap earnings growers

The catalyst is sustained economic expansion (ISM > 50), which started in early Q4 2025.