Mean Reversion

Stock prices drift around a long-run growth trend, and when they get far above or below that trend, future returns tend to reverse toward it. This isn't a crash timer — markets can stay stretched for years — but it frames whether the next 5 to 10 years are more likely to be a decent or lean stretch for equities. When the market is well above trend, it's a signal to dial down return expectations and hold more dry powder; well below trend, it's historically been a good entry window for long-horizon capital. The chart plots how far the market sat above or below its long-run trend, measured in standard deviations, with the index level on the tooltip. Heights are comparable across eras because every month is measured against the same trend. The percentile beside it is a different cut: it ranks each month against only the history available up to it, so 1997 is judged against 1950-1997 rather than against a record that already contains the dot-com peak.