The recent declines in the US publicly equity markets in response to good US economic data support the argument that quantitative easing and near zero interest rate policy has created a bubble in the US stock prices. There seems to be a consensus that prices will continue to decline as interest rates normalize. While I concede that cheap money has been a major driver in the rise in US asset prices, I think there must be other factors at play. Japanese markets have not had the same run up in asset prices, despite similarly low interest rates and quantitative easing.
Tyler Cowen offers a contrarian hypothesis for high US asset prices in his recent Bloomberg article. He suggests that at least a portion of the rise in US asset prices is due to a lack of alternative financial institutions to store wealth. According to the Credit Suisse Research Institute's Global Wealth Report 2017, global wealth is up 27% from 2007-2017. This approximately $60 trillion in new wealth has to be stored somewhere and the US public equity markets have received a large share of invested capital. I have included an excerpt from Tyler's Article below.
To sum this all up in a single nerdy finance sentence, in a world where wealth creation has outraced the evolution of good institutions, the risk premium may be more important than you think