Quote:
Originally Posted by Pugchief
Another thing to consider, beyond the government's involvement*, is that a PE of 15 was historical. Imagine a world where triple the money was printed, but there's not triple the amount of value-generating businesses to invest in. You would expect PEs to 30+ because there's more paper cash chasing fewer business ownership stakes (stocks). Also in a world with PE of 30 compared to PE of 15, you would expect investment returns to be half going forward since you're paying twice as much for the same businesses / profit / future cash flow.
*BTW, when has this ever turned out well?
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although true for the historical SP500, SPX, there have the 176 changes in the composition of the SPX in 30 years, (not exactly certain of time frame) removing old P/E stocks with new P/E stocks. . .
Technology stock inclusions versus traditional mfg stocks have distinctively different features:
tech stocks can scale to larger sizes
tech stocks have a higher percentage of recurring revenue vs product revenue
tech stocks have a bit higher cash flow
tech stocks have a speed innovation factor, where old products do not. .
So the SPX may be able to earn a higher multiple consistently than old product stocks, but the question remains about indexing:
As more shares are purchased monthly for 401Ks and are purchased without regard to valuation levels, and are held indefinitely without trading, that leaves few actively managed shares to manipulate the price, and fewer shares means more volatile pricing. .
And then at some tipping point in the future, will the 401K inflows be overtaken by the IRA RMD outflows as the working population with 401Ks falls with continued corporate layoffs due to AI and automation, and especially if SS benefits are reduced due to funding issues?
macro viewpoints of course