Index valuation

Market concentration has become one of the most discussed structural risks in today’s equity markets. A small group of mega-cap stocks—often the largest five to ten names—now accounts for an unusually large share of major market indices. This has led to widespread concerns that such concentration makes markets more fragile and that elevated index weights at the top may foreshadow weaker future returns. Many investors worry that history is repeating itself and that extreme concentration today implies disappointment tomorrow.

Valuation models for equity indexes are essential tools for investors seeking to assess long-term market conditions. Traditional models like the CAPE ratio, introduced by Robert J. Shiller, or the Buffett Indicator often rely on macroeconomic variables such as corporate earnings or GDP. While informative, these models can be complex and dependent on data that may be revised or vary across regions. In this article, we introduce a simpler alternative: a valuation ratio based solely on the inflation-adjusted total return of the index, offering a streamlined and transparent approach to index valuation. Finally, our goal would be to answer the question from the title – Are the indexes fairly priced at the moment?