I am a simple index fund DCA investor and I have no background in finance, and Im not necessarily arguing for or against the market being overvalued
However I do feel like a lot of the reasons people point to as suggestive of the market being overpriced are kind of wrong and/or out of date. Here are some of my thoughts. This is not AI, it's just easier for me to organize my thoughts this way
**Public companies are just way less capital intensive than they used to be-** this means less money has to be reinvested back into the business to grow. A lot of the agreed on equilibrium points for healthy markets were developed around a market dominated by capital intensive heavy industry and hard goods. Now big market cap companies, at least until recently (LOL) were way less capital intensive, enabling much higher FCF compared to equity and enabling more return to shareholders and reinvestment. So the nature of the businesses that make up the market has changed substantially, which should change the benchmarks of broad market "fair value"
**Passive investing momentum has fundamentally changed how stocks are priced-** this is for better or worse. Passive investing went from nothing to the majority of equities held over the last few decades. My gut says this basically crushes alpha and price discovery. If a business is gonna get bought consistently regardless of how it performs thats kind of a get out of jail free card for the stock price unless stuff really goes crazy.
**Macroeconomic conditions have shifted significantly-** when stuff like CAPE ratio etc were invented and rules of thumb people still cite were established we were looking at very different inflation and interest rates. From what I understand lower interest rates = higher P/E since investors can't just run to bonds to get decent returns. Though now bonds are in a pickle because even w/recent hikes they're still not competitive with equities
**Equal weighted forward P/E isnt that crazy-** big tech is obviously running hot but when you look at equal weighted SP500 indices, which are more representative of the overall corporate environment, they've been around the norms people tend to site, and forward P/E is estimated around 17 or so. Thats on the higher end but not out of bounds like total market which says to me the market outside of big tech is healthy-ish.
I do kind of feel like a lot of claims of the market being overpriced are emotionally driven- I lurk on WSB and prob once every 2 weeks or so someone posts a manifesto of how the market is doomed. You dig into their background and theres something personal driving bias- theyre coming off a bad trade or are bitter about failing to time the market. I think theres a lot of anxiety about buying at "highs" but unless you are retiring tomorrow today's highs don't seem relevant
Just something that was rattling around my brain, let me know if this makes sense or if Im completely off base.