Driven by a long-term bull market in bonds, baby boomer suppression of wages and then excess capital, along with globalisation, passive indexing has become the majority of inflows into equities. This has been highlighted my many, but perhaps most famously Mike Green of Simplify Asset Management:
There has been speculation about if/when the high valuations could unwind and perhaps break the dogmatic belief in passive indexing. Possible candidates for this include the following:
1. The End of Globalisation and Beginning of Capital Controls:
https://www.youtube.com/watch?v=nHFP0eauiaE
2. Capital Scarcity and Return to a Pro-Labour over Pro-Capital Paradigm:
3. The Megacap Tech Stocks Finally Reaching TAM:
Apple has already gone to basically no growth because everyone has an iPhone. Once everyone uses Google or Office 365 or something like Deepseek shows that we don’t need so many Nvidia GPUs, it could cause a sell-off in the largest companies keeping the indexing afloat, breaking the belief that the market always goes up.
4. A Recession Causing New Inflows to Stop:
If people lose their jobs and 401K payments stop, this could cause selling with no active bid to put a floor on the market. The covid crash could be a preview of what happens in a very thin market, with no specialist market makers and few active managers.