Normally talking, better starting off valuations tend to be associated with reduce foreseeable future returns, though that romance is not specifically solid about brief (< 5 year) time horizons. Of course, bulls will argue that elevated valuation ratios are justified given the low yields on bonds, unprecedented liquidity injections, and comparatively high profit margins.

Notably, we may already be past “peak stimulus” globally. Across the major developed economies, fiscal policymakers are rapidly looking to rein in deficits to improve their balance sheets and mitigate inflation fears. Meanwhile, most major central banks are similarly looking to “normalize” monetary policy after cutting interest rates to 0% (or below in some cases!) and instituting massive asset purchase programs in recent years.

At the margin, government spending and interest rates will likely provide less of a tailwind for global indices in 2022 as compared to 2021 or 2020.