The Stock Market Affordability Crisis

• Technology sector shows the highest growth premium at 86 cents per dollar, requiring an estimated 36.8 additional years of current earnings to justify valuations beyond the initial 3-year assumption
• Financials experienced the highest valuation inflation at 50.63% annualized over the period, while Utilities saw a 20.98% increase in the most recent year, correlating with AI-related infrastructure demand
• Market valuations appear heavily leveraged to AI growth expectations, with the FOMC maintaining the same 1.8% three-year GDP growth forecast from 2022 to 2025, suggesting investors are 'paying more for the same' fundamentals

Market Summary: Stock Market Affordability Crisis

Key Findings

The S&P 500's "growth premium" - the portion of stock prices beyond book value and three years of discounted earnings - has surged from 59 cents per dollar in Q4 2022 to 72 cents per dollar in Q3 2025, representing a 22.6% increase and an annualized inflation rate of 7.71%. Quarter-over-quarter growth from Q2 to Q3 2025 showed an annualized rate of 9.45%, exceeding consumer price inflation.

Sector Analysis

Lowest Growth Premiums:

• Energy: $0.32 per dollar (5.7 years to breakeven)
• Financials: $0.44 per dollar (8.1 years to breakeven)
• Utilities: $0.51 per dollar (12.1 years to breakeven)

Highest Growth Premiums:

• Technology: $0.86 per dollar (36.8 years to breakeven)
• Real Estate: $0.60 per dollar (29.1 years to breakeven)
• Consumer Discretionary: $0.79 per dollar (27.9 years to breakeven)

Fastest-Growing Premiums:

• Financials: 50.63% annualized growth (AI trade lenders)
• Utilities: 20.98% recent year growth (AI power suppliers)
• Communication Services: 14.98% annualized (Meta, Google)

Market Implications

Despite Federal Reserve GDP growth forecasts remaining flat at 1.8% from 2022 to 2025, investors are paying significantly more for the same growth expectations - a concerning "shrinkflation" dynamic. The market appears heavily leveraged to AI-related sectors. November CPI data showed inflation below expectations but above the Fed's 2% target, while stock valuations suggest investors face their own affordability crisis with many sectors requiring decades-long holding periods to justify current prices.