Executive Summary 

• The upcoming SpaceX initial public offering (IPO) is record-breaking in scale, highlighting the magnitude of market exuberance.

• Both equity markets and bond yields have experienced a pronounced rise since the start of the year.

• Equity valuations have become more stretched, though selective opportunities remain, while fixed income is increasingly attractive.

• Converging expected returns have brought the probability of equity outperformance to its lowest level in almost two decades.

• The narrowing gap between equities and fixed income provides a compelling case for proactive rebalancing. 

The upcoming SpaceX IPO is record-breaking in scale, highlighting the magnitude of market exuberance

• SpaceX is set to be the largest IPO on record, with a projected valuation of roughly $1.8 trillion, underscoring the level of enthusiasm in equity markets and a broader environment of elevated valuations.

• Despite the headline figure, only 3 – 5% of SpaceX shares are expected to be publicly available after issuance, with the majority remaining closely held by existing investors.

• As a result, SpaceX’s float adjusted weighting, if or when it is eventually added to the S&P 500 would be roughly 0.1% of the index. As of now, SpaceX is not expected to be immediately added to the index.  

Shown are the five largest initial public offerings (IPOs) by market capitalization at listing and the total capital raised. SpaceX figures are estimated based on publicly reported anticipated deal terms, including expected valuation and capital to be raised. SpaceX’s free float as a percentage of total shares and the S&P 500 index weight, based on float-adjusted market capitalization, are derived from the anticipated deal terms. SpaceX is not expected to be included in the S&P 500 immediately. Past performance is not indicative of future results. Actual results may differ materially from expectations.

Both equity markets and bond yields have experienced a pronounced rise since the start of the year

• Equity markets have seen notable movements since the start of the year, including a decline in March following the onset of the Middle East conflict and a sharp rebound after an end to the conflict seemed more likely, and a historically strong earnings season.

• Treasury markets followed a similar path with a sell-off and subsequent recovery; however yields have remained elevated year to date as inflation expectations and the policy outlook continue to weigh on long-term rates. 

Shown on the left is the S&P 500 which is a market capitalization weighted index of U.S. large cap stocks. Shown on the right is the yield on 10-year U.S. Treasury bonds. Past performance may not be indicative of future results. One cannot invest directly in an index.

Equity valuations have risen to notable levels, but disparity still provides room for opportunity

• U.S. large cap valuations have continued to flirt with extreme levels driven by the rebound in mega cap stocks and strong earnings momentum.

• Other areas of the market, including U.S. small cap, international, and Japan, remain closer to fair value, suggesting opportunities still exist for investors willing to look beyond the largest U.S. names. 

Data shown are Glenmede’s estimates of long-term fair value for U.S. Large Cap (MSCI USA), U.S. Large Cap Growth (MSCI USA Growth), U.S. Large Cap Value (MSCI USA Value), U.S. Small Cap (MSCI USA Small), International (MSCI All Country World ex-U.S.), Europe (MSCI Europe), Japan (MSCI Japan), and Emerging Markets (MSCI EM) based on normalized earnings, normalized cash flows, dividend yield, and book value for each index. Blue dots represent current valuation levels and purple dots represent valuation level as of 12/31/2025. Glenmede’s estimates of fair value are arrived at in good faith, but longer-term targets for valuation may be uncertain. One cannot invest directly in an index.

The rise in yields provides an interesting alternative for investors in diversified portfolios

• The Treasury yield curve remains elevated relative to its 20-year average across most maturities, reflecting the cumulative effects of a more restrictive policy stance and higher inflation expectations.

• Across the broader fixed income landscape, most major bond categories are yielding near fair value, suggesting current income levels may offer a reasonable entry point relative to long-term expectations. 

The expected return gap between equities and fixed income has narrowed in recent years

• Expected returns for global equities and U.S. core fixed income have converged meaningfully in recent years, compressing a gap that was historically wide when rates were low.

• The narrowing reflects both higher bond yields, which have improved fixed income's return outlook, and elevated equity valuations, which have moderated the expected return advantage for stocks.  

Converging expected returns have pushed the probability of equity outperformance to a two-decade low

• The implied probability of equities outperforming fixed income over the next decade has fallen to roughly 68%, its lowest level in almost two decades.

• While equities still hold a modest expected return advantage, the compressed gap suggests fixed income now plays a more competitive role in portfolio construction than it has in recent history.