US equities face a lost decade
The bear case argued by Kevin Muir is that extreme valuations and a compressed equity risk premium point to a 'lost decade' of flat or negative real returns for US equities.
The argument
Muir pointed to the Buffett indicator and CAPE ratio reaching record highs, alongside a reversed equity risk premium where the 10-year Treasury yield exceeds the S&P 500 earnings yield. He argued that while these are not short-term timing tools, they historically guarantee poor 5-to-10-year returns, making this a time to reduce equity exposure.
The thesis, stress-tested
✓ What validates it
- ✓S&P 500 forward P/E ratio contracts toward historical averages of 16-18x
- ✓The S&P 500 earnings yield rises back above the 10-year Treasury yield
▸ Risks discussed
- ▸Near-term momentum and FOMO can keep markets expensive longer than expected
- ▸Strong economic growth and corporate earnings could defer the valuation correction
Hear it yourself
"But looking at a lot of the topics that you've written here, kind of a a theme running through them is that the market seems to be kind of looking past or getting a couple of important things wrong here. And so we'll we'll talk through several of them. We can we can start wherever you like. But, let me just ask you kind of at a high level here. We've got markets that are kind of unsinkable at this point. Right? They're being driven, by a lot of fervor around the AI trend. Obviously, the the peace deal is kinda good news for the market, so whatever worries they had about Iran seem to be kinda dissipating at this point in time."
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