Stock market prices keep increasing but what about real value of those stocks?

Stock prices have risen much faster than underlying business value in many markets, so “real” expected returns from here are likely lower than what headline indexes suggest, especially in the U.S. The gap between market price and fundamental value is unusually wide by several long‑term valuation measures.x+1​

Price vs “real value”

In valuation terms, price is what traders currently pay for a share, while “real value” (intrinsic value) is what the business is worth based on the cash it can generate over time, adjusted for risk and inflation. Prices move minute‑to‑minute with flows and sentiment; intrinsic value moves slowly with fundamentals like revenues, margins, assets, and the cost of capital.investopedia+3​

Current valuation signals

Several broad indicators suggest U.S. equities are expensive relative to fundamentals:

• The Shiller CAPE ratio for the S&P 500 is around 39–40 in late 2025, versus a long‑run norm near the mid‑teens, a level historically associated with below‑average 10–20 year real returns.ycharts+2​

• Research connecting high CAPE readings with forward returns implies that with today’s valuations, long‑run real equity returns may cluster in the low single digits unless earnings growth meaningfully exceeds history.gurufocus+1​

• Analysts tracking the equity risk premium note that it has compressed: the extra return investors demand over “safe” bonds has shrunk as stock prices outran earnings and as bond yields rose, leaving less margin of safety.ainvest+2​

Why prices can outrun value

Price can detach from value for extended periods because markets discount a story about the future, not the current balance sheet:

• Optimism about AI, tech, and lower long‑term rates can push up valuation multiples even if near‑term profits are flat.blogs.cfainstitute+1​

• Liquidity, buybacks, passive index flows, and tax‑advantaged saving can keep pushing money into the same large caps regardless of valuation, inflating index levels without equivalent growth in real productive capacity.sciencedirect+1​

• Narrow leadership means a small set of mega‑caps can drive index prices higher even if the “median” stock isn’t doing nearly as well.ainvest+1​

Implications for “real” value and returns

When valuations are this elevated, most of the future return has been “pulled forward” into today’s prices, which means:

• The probability distribution of outcomes skews: more downside if anything goes wrong (earnings disappoint, rates stay high, geopolitical shock), and less upside if things go right.cmegroup+1​

• Long‑term studies of valuation ratios and fundamentals find that buying at high valuation multiples tends to produce weaker real returns and larger drawdowns over 10–15 year horizons, even though short‑term moves remain unpredictable.frbsf+2​

How to think about this as an investor

For someone concerned with “real value” rather than price momentum, that typically leads to:

• Anchoring decisions in cash flows, balance sheets, and required return (discount rate), not narratives.corporatefinanceinstitute+2​

• Being cautious about broad, cap‑weighted U.S. equity exposure at current valuations, and looking instead at areas with lower multiples (certain international markets, smaller caps, or unfashionable sectors) if they have solid fundamentals.pages.stern.nyu+2​

• Accepting that index levels can keep rising even as expected real returns fall, because prices are set at the margin by risk preferences and flows, not by some automatic tether to productive value.fooletfs+1​

If you want to get concrete, the next step would be to pick a specific sector or name you follow and walk through how its current price compares with an intrinsic value estimate under reasonable cash‑flow and discount‑rate assumptions.

1. https://x.com/i/grok/share/D36ShXYPAgp1l804L38xMP20L
2. https://ycharts.com/indicators/cyclically_adjusted_pe_ratio
3. https://www.investopedia.com/articles/stocks/08/stock-prices-fool.asp
4. https://corporatefinanceinstitute.com/resources/valuation/intrinsic-value-vs-market-value/
5. https://fooletfs.com/insights/in-the-stock-market-price-and-value-are-not-the-same-things
6. https://www.disnat.com/en/learning/trading-basics/stock-selection-strategies/fundamental-analysis
7. https://www.multpl.com/shiller-pe
8. https://www.gurufocus.com/shiller-PE.php
9. https://www.ainvest.com/news/narrowing-equity-risk-premium-strategic-rebalancing-2025-2509/
10. https://www.kroll.com/en/reports/cost-of-capital/recommended-us-equity-risk-premium-and-corresponding-risk-free-rates
11. https://www.cmegroup.com/openmarkets/equity-index/2025/Behind-the-Declining-Risk-Premiums-of-Equity-and-Credit-Assets.html
12. https://blogs.cfainstitute.org/investor/2025/05/01/when-the-equity-premium-fades-alpha-shines/
13. https://www.sciencedirect.com/science/article/abs/pii/S0378426605002104
14. https://www.frbsf.org/wp-content/uploads/stockprices.pdf
15. https://www.schwab.com/learn/story/how-to-pick-stocks-using-fundamental-and-technical-analysis
16. https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datacurrent.html
17. https://www.oaktreecapital.com/insights/memo/the-calculus-of-value
18. https://www.reddit.com/r/stocks/comments/19e4krt/are_fundamentals_and_price_action_meaningless/
19. https://www.gurufocus.com/economic_indicators/56/sp-500-shiller-cape-ratio
20. https://advisor.visualcapitalist.com/stock-value-vs-price/