closed sharply higher on Wednesday , rising to yet another record high. Beta risk, in other words, is making more investors look like geniuses this year. The question is whether the increasingly strong ex-post returns are borrowing from the ex-ante data?
Not surprisingly, valuations are high, as the CAPE and other indicators suggest. Forecasting S&P 500 returns based on earnings-yield and dividend-yield models continue to project modestly negative returns. The current reading isn’t unprecedented, which leaves room for even higher prices, but the relatively high print is a reminder that we’re probably closer to a near-term top vs. any time in the past three years.
The pushback to the analytics above is that the market reflects a new world order of AI-driven productivity and growth gains. On this basis, historical comparisons matter less, perhaps not at all. Alas, no one can refute that view for the simple reason that the future is unclear.
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