1. U.S. markets hit record highs. Underlying profitability is in sharp decline. 2. Small-caps show 32% unprofitability. Large-caps fare better at 12%. 3. RUT’s trailing P/E is 16.57. Adjusted P/E climbs to 33.89, indicating overvaluation. 4. Overreliance on megacaps increases systemic risk. Historical drawdowns signal vulnerability.
The article reveals that RUT’s apparent reasonable P/E is misleading because unprofitable companies were omitted. This suggests overvaluation similar to past corrections when underlying fundamentals deteriorated, potentially triggering market adjustments.
By exposing hidden overvaluation in RUT through adjusted P/E metrics, the article highlights a substantial risk factor that could impact price performance, drawing parallels with historical market corrections.
Given that sudden drawdowns in megacaps have led to swift market corrections historically, the risk for RUT appears imminent if these vulnerabilities materialize.