As Stoppard postulated in his play, The Hard Problem: “In theory, the market [like life] is a stream of rational acts by self-interested people; so risk ought to be computable. But every now and then, the market’s behavior becomes irrational, as though it’s gone mad, or fallen in love. It doesn’t compute. It’s only computers compute.”Bob Seawright
Financial markets are narrative generating machines. Creating stories is the only way we can deal with the discomfort caused by their complexity and unpredictability. Some can be long-running undercurrents (secular stagnation, for example), others can flare up and come to dominate but only for fleeting periods. The current fascination with inflation is in the latter group, it might morph into something more enduring, but nobody really knows.Joe Wiggins
On this basis, bubble talk isn’t helpful. To be sure, there is a relationship between ex ante results and current valuation and on that basis investors should be lowering expectations for the US equity market. What does that mean in practice? It depends on the investor.
However not every index that includes Tesla among its constituents weights it only according to its market capitalisation. Tesla, which became a household name with its high-end electric vehicles, is sometimes awarded a higher weighting in indices that track companies according to their environmental, social and governance (ESG) ratings.