- A constant refrain has been wandering through my mind the past several days, weeks, months, and that specifically is how much extraordinary risk and extraordinary reward are currently present.
- With regard to the broader U.S. equity markets, we're historically overvalued, dwarfing the peak valuations of late 1999 and early 2000.
- Translating this observation into something actionable, what this means is that expected real returns for the broader U.S. equity market are going to be worse than any other time.
- Similarly, unlike late 1999/early 2000, when fixed-income yields started much higher, the total return potential for bond investments going forward, especially in real terms, is extremely poor.
- Despite broader historic overvaluations, at the opposite end of the spectrum, there are certain equities that appear historically undervalued, hidden in plain sight as we are at the start of the secular bull market, not the end.
For further details see:
A Bifurcated Market: Extraordinary Risk And Extraordinary Reward