S&P 500 trades at a historically elevated valuation on both an aggregate and equal-weighted basis. Further valuation expansion is unlikely without a surprising further decline in yields.
Three trades that offer value in a highly-valued market. (1) Own small-caps: Low valuations and a healthy economic outlook imply the Russell 2000 should return 15% in the next 12 months vs. 8% for S&P 500. (2) Own weak vs. strong pricing power stocks: Firms with weak pricing power typically outperform as EBIT margins improve. (3) Own Consumer Staples vs. Utilities: Consumer Staples offers attractive value. During 8 Fed easing cycles since 1984, Staples has outpaced S&P 500 75% of the time in the 12 months after the first cut.