OneTrust Cookie Consent

Navigation

  • Skip to Content
  • Client Log In
  • Investor relations  (opens in a new tab)
  • Sustainability Institute  (opens in a new tab)
  • Subscribe
  • Contact us
  • Careers
  • Region
  • Go back to Main Menu
  • Client Log In
  • MSCI ONE  (opens in a new tab)
  • MSCI Client Support Site
  • Barra PortfolioManager
  • BarraOne  (opens in a new tab)
  • MSCI ESG Manager  (opens in a new tab)
  • MSCI ESG Direct  (opens in a new tab)
  • Global Index Lens
  • MSCI Real Assets Analytics Portal  (opens in a new tab)
  • RiskManager 3  (opens in a new tab)
  • CreditManager  (opens in a new tab)
  • RiskManager 4  (opens in a new tab)
  • Index Monitor  (opens in a new tab)
  • MSCI Datscha  (opens in a new tab)
  • MSCI Real Capital Analytics  (opens in a new tab)
  • Private i  (opens in a new tab)
  • Total Plan/Caissa  (opens in a new tab)
  • MSCI Wealth Manager (Fabric)  (opens in a new tab)
  • MSCI Carbon Markets  (opens in a new tab)
  • Go back to Main Menu
  • Region
  • China
  • India
  • Japan
Navigation

Navigation Menu

  • Our Clients
    • Go back to Main Menu
    • Our Clients
    • Asset Managers
    • Asset Owners
    • Banks
    • Corporates
    • Hedge Funds
    • Insurance Companies
    • Wealth Managers
  • Our Solutions
    • Go back to Main Menu
    • Our Solutions
    • Analytics
      • Go back to Our Solutions
      • Analytics
      • Analytics Overview
      • Risk Management
      • AI Portfolio Insights
      • Multi-asset Class Factor Models
      • Quantitative Investment Solutions
      • Fixed Income Analytics
      • Portfolio Management
      • Crowding Solutions
      • Regulatory Solutions
      • Managed Solutions
    • Climate Investing
      • Go back to Our Solutions
      • Climate Investing
      • Climate Investing Overview
      • Biodiversity
      • Carbon Markets
      • GeoSpatial Asset Intelligence
      • Portfolio Sustainability Insights
      • Real Estate Climate Solutions
    • Sustainable Investing
      • Go back to Our Solutions
      • Sustainable Investing
      • Sustainable Investing Overview
      • ESG Fund Ratings and Climate Search Tool
      • ESG Ratings
      • Impact Solutions
      • Sustainability Reporting Services
      • Sustainability and Climate Regulatory Toolkit
    • Factor Investing
      • Go back to Our Solutions
      • Factor Investing
      • Factor Investing Overview
      • Equity Factor Models
      • FactorLab
      • MSCI FaCS
      • Factor Indexes
    • Fixed Income
      • Go back to Our Solutions
      • Fixed Income
      • Fixed Income Overview
      • Fixed Income Analytics
      • Fixed Income Indexes
    • Private Capital
      • Go back to Our Solutions
      • Private Capital
      • Private Capital Overview
      • Private i
      • Total Plan Manager (formerly Caissa)
      • Emissions Footprinting
      • Private Capital Indexes
      • Private Company Data Connect
    • Real Assets
      • Go back to Our Solutions
      • Real Assets
      • Real Assets Overview
      • INCANS
      • Index Intel
      • Portfolio Services
      • Property Intel
      • Private Real Assets Indexes
      • Real Capital Analytics
    • Wealth Management
  • Indexes
    • Go back to Main Menu
    • Indexes
    • Indexes Overview
    • By Category
      • Go back to Indexes
      • By Category
      • By Category Overview
      • Climate
      • Market Cap
      • Fixed Income
      • Client-Designed
      • Sustainability
      • Factor
      • Thematic
      • Private Real Assets
      • Private Capital
    • Tools
      • Go back to Indexes
      • Tools
      • Tools Overview
      • Index Monitor
      • MSCI Index API
      • MSCI IndexMetrics®
      • Index Data Modules
      • Equity Index Constituents
      • Fixed Income Index Constituents
      • Index Profile Tool
      • Direct Indexing
    • Resources
      • Go back to Indexes
      • Resources
      • Resources Overview
      • Communications
      • Education
      • Equity Factsheets
      • Derivatives
      • Methodology
      • Performance
      • Regulation
  • Research & Insights
    • Go back to Main Menu
    • Research & Insights
    • Research & Insights
      • Go back to Research & Insights
      • Research & Insights
      • Research & Insights Overview
      • Carbon Markets
      • Climate
      • Equities
      • Factor Investing
      • Fixed Income
      • Multi-Asset Class
      • Private Capital
      • Real Estate
      • Sustainability
    • Events
      • Go back to Research & Insights
      • Events
      • Events Overview
      • On Demand
  • Discover MSCI
    • Go back to Main Menu
    • Discover MSCI
    • About Us
    • Technology
      • Go back to Discover MSCI
      • Technology
      • Technology Overview
      • Data Explorer
      • Developer Community
      • Technology and Data
    • Corporate Responsibility
      • Go back to Discover MSCI
      • Corporate Responsibility
      • Corporate Responsibility Overview
      • Enabling Sustainable Investing
      • Environmental Sustainability
      • Governance Practices
      • Social Practices
      • Sustainability Reports and Policies
    • Inclusion & Belonging
    • Media Room
    • Our Leadership
    • Recognition
  • Client Log In
  • Investor relations  (opens in a new tab)
  • Sustainability Institute  (opens in a new tab)
  • Subscribe
  • Contact us
  • Careers
  • Region
  • Go back to Main Menu
  • Client Log In
  • MSCI ONE  (opens in a new tab)
  • MSCI Client Support Site
  • Barra PortfolioManager
  • BarraOne  (opens in a new tab)
  • MSCI ESG Manager  (opens in a new tab)
  • MSCI ESG Direct  (opens in a new tab)
  • Global Index Lens
  • MSCI Real Assets Analytics Portal  (opens in a new tab)
  • RiskManager 3  (opens in a new tab)
  • CreditManager  (opens in a new tab)
  • RiskManager 4  (opens in a new tab)
  • Index Monitor  (opens in a new tab)
  • MSCI Datscha  (opens in a new tab)
  • MSCI Real Capital Analytics  (opens in a new tab)
  • Private i  (opens in a new tab)
  • Total Plan/Caissa  (opens in a new tab)
  • MSCI Wealth Manager (Fabric)  (opens in a new tab)
  • MSCI Carbon Markets  (opens in a new tab)
  • Go back to Main Menu
  • Region
  • China
  • India
  • Japan

Main Search

Popular searches:
ACWI (opens in a new tab) Research (opens in a new tab) ESG (opens in a new tab) Factor Investment (opens in a new tab) Insights Gallery (opens in a new tab) Asset Owners (opens in a new tab)
Might interest you:
Powering Better Portfolios through Technology and Data
MSCI offers clients mission-critical data and technology capabilities focused on quality, reliability, and scale. To power the next wave of growth,...
ESG Ratings
MSCI ESG Ratings provides insights into ESG risks and opportunities within multi-asset class portfolios.
Research
MSCI has applied pioneering ideas to real-world investment challenges for more than four decades.
Still a Long Way Down for US Equities?

Extended Viewer

 

Still a Long Way Down for US Equities?

 

Peter Shepard
April 11, 2025

Markets are experiencing two major events together: a correction from bubble-territory valuations combined with the economic fallout of trade tensions. Despite a partial reversal of tariffs and some calls to “buy the dip,” macro fundamentals suggest U.S. equity valuations are still high, and risk much greater drawdowns.

First, even if we ignore the tariffs, the MSCI Macro-Finance Model still sees U.S. equity valuations as well above historical averages. As we observed last month in A Long Way Down for US Equities? — valuations for U.S. equity have been exceptionally high. As of April 10, valuations still appeared at least 18% high, even assuming no negative impact from trade turmoil.

If tariffs bring modestly lower growth and higher inflation, the model suggests U.S. equity is an additional 15% overvalued. But drawdowns greater than 40% could arise if we see worse stagflation or if the equity risk premium goes to the levels of previous crises.

MSCI’s forward equity risk premium (ERP) reflects the expected return premium needed to reconcile market prices with macro fundamentals.1 Traditional valuation measures like price-to-earnings ratios also see valuations as high, but accounting for changing growth expectations and higher real rates significantly amplifies the signal.

The Fed has few options

The macro-finance model sees tariffs as especially risky. There is not likely to be a “Powell Put” this time. The Federal Reserve was able to moderate previous crises — from Black Monday in 1987 to the burst of the dot.com bubble, the 2008 global financial crisis and the onset of the COVID-19 pandemic — by lowering interest rates to stimulate demand and help revive a faltering economy.

There may be no such rescue if tariffs spur inflation and squeeze the inputs to growth. Tighter supply could force the Fed into a Volcker-like rate hike — or risk letting inflation expectations loose. This time may be different.

The author thanks Will Baker and John Burke for their contributions.

US equity valuations are still historically high



1 A low premium corresponds to high market prices relative to future cash flows, and suggests both lower long-term returns and a higher risk of a near-term market correction.

Related content

A Long Way Down for US Equities

Markets may still be overvalued after the recent correction. The sell-off in U.S. equities brought a 10% drawdown, but macro fundamentals suggest the market may still be 20% overvalued, and could go even lower if tighter supply brings higher inflation and lower growth.

Learn more

The MSCI Macro-Finance Model

Our new framework links financial markets to macroeconomic factors, focusing on cash flows, discount rates, growth and inflation. It helps investors in their capital-market assumptions, risk management and asset allocation, using the MSCI Macro-Finance Model.

Explore more

How Tariffs Could Impact Equity Markets: Building Scenarios

Tariff risks are at center stage for investors. To help manage the uncertainty, this blog post shows how revenue-exposure data and a scenario-analysis framework enable equity investors to translate targeted industry assumptions into potential portfolio-level impacts.

Read the blog

Navigating Uncertainty: Tariff Implications

What global shifts mean for decision-makers.

Read more

msci logo
  • Terms of Use
  • Legal
  • Modern Slavery Statement
  • Privacy notice
  • Index regulation
  • Locations
  • Cookies
  • Use of ISO standards
  • Site map
Subscribe Contact us
© 2025 MSCI Inc. All rights reserved

UtmAnalytics