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Is the S&P 500 Fairly Valued as of April 30, 2025?
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The stock market has been highly volatile. As of April 30, 2025, the S&P 500 Index has recovered 62% of its losses from the year’s low, yet remains approximately 9% below its year’s high. With new Gross Domestic Product (GDP) data released today, this presents an opportune moment to assess whether the S&P 500 is expensive or cheap relative to the broader U.S. economy.
To answer this, I applied a GDP-based linear regression model to estimate where the S&P 500 should be trading in the second quarter of 2025. The goal is to assess whether the market’s current price aligns with economic fundamentals, particularly nominal GDP, a key indicator of the economy’s overall size and health.
Using GDP as a valuation anchor for the S&P 500 is both conceptually logical and statistically sound. I developed two linear regression models for this analysis: one based on ten years of quarterly data and another using twenty years. This dual approach captures both recent economic dynamics and longer-term structural trends, especially relevant as U.S. policy shifts increasingly toward domestic growth and protectionism.
Estimating Q2 2025 Nominal GDP
To run the models, I first estimated nominal GDP for Q2 2025. According to the Federal Reserve’s latest economic projections, real GDP for the full year is expected to grow between 1.5% and 1.9%, while the Personal Consumption Expenditures (PCE) price index is forecasted to rise between 2.6% and 2.9%. This implies nominal GDP growth in the range of 4.1% to 4.8%. Dividing this by four yields a reasonable estimate for quarterly GDP growth used in the model.
10-Year Model Results
Using data from the past ten years, the model forecasts that the S&P 500 Index should trade between 5,577 and 5,592 in Q2 2025, with a midpoint of approximately 5,584 (see Table 1). This implies a modest upside of 0.27% from current levels.
Statistically, the model is robust: the R-squared value is 0.88, indicating that GDP explains 88% of the variation in the S&P 500 over this period (see Table 2). The Significance F value is near zero, suggesting the model is not the result of random chance. Furthermore, the p-values for both the intercept and GDP variable are also near zero, affirming the statistical significance of GDP in explaining the index’s performance.
(Table 1, The most recent ten years of quarterly data for the S&P 500 Index and nominal GDP used in the linear regression model).
(Table 2 Summary statistics for 10-year model)
20-Year Model Results
When extending the model to the past twenty years, the results indicate the S&P 500 is overvalued by approximately 1.5% (see Table 3). Interestingly, this longer-term model is even stronger statistically, with an R-squared of 0.94, meaning it explains 94% of the S&P 500’s variation over the period (see Table 4).
Although the 20-year model suggests slight overvaluation, both models paint a consistent picture: the S&P 500 is currently trading close to its fair value based on expected GDP.
(Table 3: Regression using 20 years of S&P 500 and nominal GDP data)
(Table 4: Summary statistics for the 20-year model)
Conclusion
Based on these findings, the market does not appear significantly undervalued relative to the size of the U.S. economy. However, uncertainty remains elevated, and the risk of an economic slowdown is high. Currently, the stock market does not seem to be pricing in the possibility of a downturn, leaving room for potential downside surprises that are not yet reflected in the stock prices.
While this type of model is not a crystal ball, it is a useful tool for evaluating whether market valuations are supported by economic fundamentals. As of now, the market appears fairly valued, offering limited reward for the level of risk being taken. Investors should remain cautious, especially in the near term.
Data Sources:
https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20250319.pdf
https://fred.stlouisfed.org/series/GDP
https://finance.yahoo.com/
Disclosures:
This analysis is based on historical data and forward-looking estimates that may not materialize. This content represents the author’s opinion only and is not guaranteed to be accurate or complete. Please consult a qualified financial advisor before making any investment decisions. Neither ECNFIN.com nor the author assumes liability for any actions taken based on this information. Past performance is not indicative of future results.
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By Ivan Sichkar, CFA, FRM, CFP®
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Enter your email address to follow ECNFIN.com and receive notifications of new articles by email for free. Be the first to read and do not miss future timely research publications.
The stock market has been highly volatile. As of April 30, 2025, the S&P 500 Index has recovered 62% of its losses from the year’s low, yet remains approximately 9% below its year’s high. With new Gross Domestic Product (GDP) data released today, this presents an opportune moment to assess whether the S&P 500 is expensive or cheap relative to the broader U.S. economy.
To answer this, I applied a GDP-based linear regression model to estimate where the S&P 500 should be trading in the second quarter of 2025. The goal is to assess whether the market’s current price aligns with economic fundamentals, particularly nominal GDP, a key indicator of the economy’s overall size and health.
Using GDP as a valuation anchor for the S&P 500 is both conceptually logical and statistically sound. I developed two linear regression models for this analysis: one based on ten years of quarterly data and another using twenty years. This dual approach captures both recent economic dynamics and longer-term structural trends, especially relevant as U.S. policy shifts increasingly toward domestic growth and protectionism.
Estimating Q2 2025 Nominal GDP
To run the models, I first estimated nominal GDP for Q2 2025. According to the Federal Reserve’s latest economic projections, real GDP for the full year is expected to grow between 1.5% and 1.9%, while the Personal Consumption Expenditures (PCE) price index is forecasted to rise between 2.6% and 2.9%. This implies nominal GDP growth in the range of 4.1% to 4.8%. Dividing this by four yields a reasonable estimate for quarterly GDP growth used in the model.
10-Year Model Results
Using data from the past ten years, the model forecasts that the S&P 500 Index should trade between 5,577 and 5,592 in Q2 2025, with a midpoint of approximately 5,584 (see Table 1). This implies a modest upside of 0.27% from current levels.
Statistically, the model is robust: the R-squared value is 0.88, indicating that GDP explains 88% of the variation in the S&P 500 over this period (see Table 2). The Significance F value is near zero, suggesting the model is not the result of random chance. Furthermore, the p-values for both the intercept and GDP variable are also near zero, affirming the statistical significance of GDP in explaining the index’s performance.
(Table 1, The most recent ten years of quarterly data for the S&P 500 Index and nominal GDP used in the linear regression model).
(Table 2 Summary statistics for 10-year model)
20-Year Model Results
When extending the model to the past twenty years, the results indicate the S&P 500 is overvalued by approximately 1.5% (see Table 3). Interestingly, this longer-term model is even stronger statistically, with an R-squared of 0.94, meaning it explains 94% of the S&P 500’s variation over the period (see Table 4).
Although the 20-year model suggests slight overvaluation, both models paint a consistent picture: the S&P 500 is currently trading close to its fair value based on expected GDP.
(Table 3: Regression using 20 years of S&P 500 and nominal GDP data)
(Table 4: Summary statistics for the 20-year model)
Conclusion
Based on these findings, the market does not appear significantly undervalued relative to the size of the U.S. economy. However, uncertainty remains elevated, and the risk of an economic slowdown is high. Currently, the stock market does not seem to be pricing in the possibility of a downturn, leaving room for potential downside surprises that are not yet reflected in the stock prices.
While this type of model is not a crystal ball, it is a useful tool for evaluating whether market valuations are supported by economic fundamentals. As of now, the market appears fairly valued, offering limited reward for the level of risk being taken. Investors should remain cautious, especially in the near term.
Data Sources:
https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20250319.pdf
https://fred.stlouisfed.org/series/GDP
https://finance.yahoo.com/
Disclosures:
This analysis is based on historical data and forward-looking estimates that may not materialize. This content represents the author’s opinion only and is not guaranteed to be accurate or complete. Please consult a qualified financial advisor before making any investment decisions. Neither ECNFIN.com nor the author assumes liability for any actions taken based on this information. Past performance is not indicative of future results.
Never miss an episode
Subscribe wherever you enjoy podcasts:
Apple
Spotify
Amazon
Our Mailing Address:
ECNFIN
1288 Kapiolani Blvd Apt 4003, Honolulu, HI 96814
Our Phone:
+1 720-593-1135
Our Fax:
+1 720-790-7606