Money For the Rest of Us
Indexing Bubble and Asset Class Returns Still Revert to the Mean
Dec 11, 2024
30:30
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Quick takeaways
- US stocks are overvalued due to rising valuations, influenced by the growth of passive investing.
- Historical data indicates that extreme stock returns tend to revert to the mean, requiring realistic expectations for future returns.
Deep dives
US Stock Market Valuation Relative to Global Stock Market
US stocks are currently at their most expensive level compared to non-US stocks in history. Despite the US having 26% of the world's economic output, its stock market comprises 66% of the global market. Performance attribution has shown that a significant portion of the annualized stock returns is due to rising valuations, contributing to the market's outperformance.
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