Business
The investment chief at Vanguard says it’s time to pivot away from U.S. stocks
Published
5 months agoon
By
Jace Porter
Greg Davis visited Fortune this month dressed like a Wall Street titan—and bearing a very un-Wall-Street message about a tepid future for U.S. stocks.
On July 11, Davis––the president and chief investment officer of Vanguard Group––came to our offices in Manhattan’s Financial District for a chat with this reporter. Though Davis works from Vanguard’s mother ship (its buildings are all named for British vessels from the Napoleonic wars) in the tiny hamlet of Malvern, Pa., west of Philadelphia, he arrived attired in a tailored gray suit and purple silk tie combo that would have fit right in with the most formal of the investment banking cadre and portfolio managers headquartered nearby.
Yet Davis’s message couldn’t have been more contrary to the fashionable view among the neighborhood’s rosy prognosticators.
The 25-year Vanguard veteran’s outlook contradicts the prevailing position advanced by the big banks, research firms, and TV pundits that despite serial years of big gains, U.S. stocks remain a great buy. That bull case rests mainly on optimism that the Big Beautiful Bill’s deregulatory agenda and tax cuts will spur the economy, and that the AI revolution promises a new world of efficiencies that will shift earnings to super-fast track going forward. The powerful momentum that has driven the Nasdaq and S&P 500 to all time highs this week bolster their argument for more to come.
Davis follows the Vanguard mindset that, arguably more than any other, revolutionized the investing world over the past half-century. The company’s founder, John Bogle, created the first index funds for ordinary investors in 1975, following the conviction that funds choosing individual stocks regularly fail to beat their benchmarks after fees, and that a pallet of diversified index funds, and later ETFs, that hold expenses to an absolute minimum, provide the best platform for achieving superior gains over the long-term.
The top testament to the enduring validity of the Vanguard model: Over 80% of its ETFs and indexed mutual fund beat their peer-group averages over the past 10 years, measured by LSEG Lipper, largely courtesy of those super-tight expense ratios. The Vanguard model’s won such overwhelming favor that it now manages 28% of the combined U.S. mutual fund and ETF universe, and it’s gained 7 points in market share in the past decade. At $10 trillion in AUM, it ranks second only to BlackRock among all U.S. asset managers.
Besides offering over 400 super-low-cost funds worldwide, Vanguard also provides investment advice as a firm, and through its army of financial advisers. A big part of the Vanguard formula: Periodically rebalancing from securities that get extremely pricey by historical standards into areas that are undervalued versus their norms. In our discussion, Davis provided a master class on how the dollars in profits you’re getting for each $100 you’re paying for a stock influences future returns, and why now is such a crucial time to shift from what’s highly, even dangerously expensive into safe areas that look like screaming buys.
Put simply, Davis argues that U.S. equities are a victim of their own success. For Davis, the fabulous ride in recent years virtually guarantees that future returns will prove extremely disappointing versus outsized, double-digit gains investors have gotten used to, and that the investment pros predict will persist. The reason is simple: U.S. stocks have simply gotten so costly that their forward progress is destined to radically slow. “Our investment strategy group’s projection is that U.S. equity market returns are going to be much more muted in the future,” Davis warns. “Over the past ten years, the S&P returned an average of 12.4% annually. We’re predicting the figure to drop to between 3.8% and 5.8% (midpoint of 4.8%) over the next decade.”
The basic market math, he contends, points to that outcome. Davis notes that the official price-to-earnings multiple on the S&P now stands at an extremely lofty 29.3. And when Vanguard uses a preferred gauge based on Nobel Prize-winning economist Robert Shiller’s Cyclically Adjusted Price-to-Earnings multiple, or CAPE––a measure that adjusts the PE by normalizing for spikes and valleys in earnings––it concludes that US stocks hover 49% over the top end of the group’s fair value range.
Davis also points out that corporate profits are now extremely high by historical levels, and hence won’t grow nearly as fast from here as their jackrabbit pace of recent years. In other words, don’t count on an EPS explosion to solve the valuation problem. In fact, this reporter notes that contrary to what we’re constantly hearing about forthcoming double-digit increases in profits, the sprint has already slowed to a stroll. From Q4 of 2021 to Q1 of this year, S&P 500 EPS grew from $198 to $217, or 9.6% in over three years, a puny pace that doesn’t even match inflation.
Huge gains have knocked portfolios out of balance
Davis explained how the longstanding bull market has wildly distorted the standard “60-40” portfolio. That classic construction of 60% stocks and 40% bonds has worked well in many periods, he notes. But today, folks who started at 60-40 a decade ago, and didn’t rebalance into bonds as equity prices swelled year after year, are now banking far too heavily on those richly-valued U.S. equities. “In the past 10 years, interest rates have mainly been very low, so bonds returned only around 2% a year, or 10% less than stocks,” declares Davis. “So the stock portion kept compounding at a high rate and getting bigger, and the bond portion kept shrinking as a share of the total. As a result, what started as a 60-40 mix is now 80-20 in favor of stocks.”
To make matters worse, says Davis, “U.S. stocks outperformed international equities by 6 percentage points a year in the past decade. So 10 years ago, if you started with the standard split 70% U.S. and 30% foreign, you’d now be at 80% U.S. and 20% foreign.” Hence, sans rebalancing, an investor’s overall share of U.S. stocks would have gone from 42% to around two-thirds, a gigantic leap.
Those weightings, he says, are lopsided in the wrong direction, in two ways—by holding far too big a percentage of stocks and not enough bonds, and within the equity portion, not owning enough foreign shares. “If you look at the bond market today and the way yields have risen, we’re projecting that you’re going to pick up very similar returns in a mix of U.S. and foreign bonds as you’ll get in U.S. equities, or also 4% to 5%. So the expectations are comparable, but you’ll have much less volatility on the bond side,” avows Davis, adding, “What’s the big advantage to betting on risky stocks when you can get 4.3% on three-month Treasuries?”
Hence, Davis makes a daring recommendation: Investors should reverse the classic blend and go with 60% bonds and 40% stocks. For the fixed income portion, he notes, Vanguard’s Total World Bond ETF (BNDW) offers a blend of domestic and international fixed income, encompassing government bonds, corporates, agencies, mortgages, and asset backed securities.
In addition, Vanguard projects that foreign shares over the next ten years will generate average returns of 7%, waxing the 5% or so for U.S. equities. Hence, Davis recommends that in the 40% dedicated to stocks, investors lean heavily to the international side by splitting the allocation evenly, or 20% and 20%, between stateside and international stocks. The Vanguard FTSE All World ex US ETF (VEU) would fit the slot reserved for the international allotment.
In summary, Davis is advising a radical rebalancing for folks who let their U.S. stocks swallow a bigger and bigger part of their portfolios as bonds and international shares underperformed year after year. So here’s are allocations he’d recommend for the decade ahead: 60% fixed income, 20% international equities, and—gulp—just 20% in U.S. stocks. Once again, that number compares to the around two-thirds you’d hold in U.S. equities if you’d started at 60-40 ten years ago and just let your gains on U.S. stocks rip without any rebalancing.
I ran some numbers on the returns you’d garner in the two scenarios: First, if you don’t rejigger and keep holding two-thirds of your portfolio in U.S. stocks, and second, if you do what Davis advocates and put 60% in bonds, and park more of the equity share abroad. In both cases, the projected future return is just over 5% yearly. No big difference in returns over the next decade.
So why choose the Davis formula? The edge in making the big shift: The path will be much smoother, predictable, and less nerve-rattling that sticking with a huge over-weighting in U.S. stocks. Of course, Davis recommends rebalancing gradually, and funding as much of it as possible with fresh savings and reinvestment of dividends and high interest payments from fixed income assets.
Davis is no fan of cryptocurrencies
Davis isn’t recommending crypto investing as a means of boosting your returns at a time when U.S. stocks won’t come close to matching their past performance. “I got into this business around the time of the dot.com era,” he told me. “Anything with a dot.com behind it went to the moon. Some were actually really good businesses, however the majority were not. Good things can come out of crypto like blockchain, and that technology can reduce costs in the financial sector and improve speed, so we think there are some good fundamental components to it. But to us investing in Bitcoin is speculation.”
For Davis, Bitcoin offers none of the advantages of traditional investments that generate interest payments, or earnings that feed capital gains and dividends. “It’s not investing in a cash flow generating business, it’s not investing in bonds where you have a commitment to getting a coupon payment every six months, then principal at maturity,” he explains. “It’s basically looking to sell to someone willing to pay more than you did. And the whole idea that a limited supply of Bitcoin will drive up its value is questionable when you consider that there’s an unlimited supply of new types of crypto that could be created. So I personally don’t get it. Vanguard won’t launch a Bitcoin fund. We just don’t see it as a core part of an investment portfolio.”
Davis grew up on an Army base near Nuremberg, Germany, the child of a father in an Airborne division and a German mother. As a kid, he mainly spoke German, including with his grandmother, and didn’t live in the U.S. until age 7. “When I go to Germany and speak the language, people can tell I’ve kept the Bavarian dialect,” he declares. He started at Penn State pursuing aeronautical engineering, but lack of skill in mechanical drawing forced him to switch—to a major in insurance. “Penn State was one of the few schools that offered that unusual major,” he says. Davis went on to get an MBA at Wharton, and after a brief stint in a Merrill Lynch training program, got an offer from Vanguard that would require a move from Wall Street to the sleepy suburbs of Philly.
Davis took the job in part because Vanguard was then a fast-growing shop, where he figured his chances of advancement would be better than at a huge bank or brokerage. He was especially attracted to Vanguard’s highly unusual “cooperative” model, where the funds––meaning the investors––are the shareholders. “So because we have economies of scale where over time our revenues grow faster than expenses, we can rebate that money back to investors by lowering fees,” he says. Davis proudly notes that Vanguard has made 2,000 such reductions in its history, and especially that in February it announced the biggest decrease ever—a cut of $350 million across 68 mutual funds and ETFs in equities and fixed income.
Vanguard’s whole approach where the objective is to constantly lower fees is highly un-Wall Street. So is Davis’s contrarian counsel to follow what the valuations and history tells us, to shift from stocks that are extremely expensive and whose prices can’t grow to the sky, despite what the bulls are saying. It’s a sobering, cautionary tale. But it’s one that makes eminent sense.
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Business
Visa launches stablecoins advisory practice to keep up with crypto wave
Published
19 minutes agoon
December 15, 2025By
Jace Porter
Another major financial institution is doubling down on stablecoins and on crypto. This time, it’s Visa. The company announced on Monday the launch of its Stablecoins Advisory Practice, a service which aims to aid fintechs, banks, and other businesses with their strategy and implementation of stablecoins.
“Helping our clients grow is frankly the reason we exist in stablecoin,” said Carl Rutstein, global head of Visa Consulting and Analytics, in an interview with Fortune. “What Visa is doing in this space is just one more area where our clients have a need.”
Stablecoins are a type of cryptocurrency designed to maintain a constant value by means of reserves that peg them to a fiat currency, typically the U.S. dollar. They have recently been embraced by a wide range of companies from the traditional financial sector following President Donald Trump’s signing of the Genius Act in July, legislation which creates rules for issuing the digital asset. In the months since, other payments powerhouses like Paypal and Mastercard have boosted their stablecoin capabilities.
Rutstein said that Visa’s stablecoins advisory has dozens of clients, among whom are Navy Federal Credit Union, the credit union VyStar, and a financial institution called Pathward. He said the practice will help businesses with their strategy, tech and operations, and implementation of stablecoins. Its clients use cases for stablecoins include cross-border transactions, especially to countries with volatile currencies, and business-to-business transactions. After using Visa’s advisory, Rutstein said some businesses may push forward with stablecoins, while others may conclude there is not a customer need. The company said that it expects the practice will grow to hundreds of clients.
Visa is by no means new to crypto. In 2023, the company piloted stablecoin settlement using USDC, and it now has over 130 stablecoin-linked card issuing programs in more than 40 countries. Visa also has about $3.5 billion in annualized stablecoin settlement volume.
“Stablecoins may represent an opportunity to enhance speed and lower cost in payments,” said Matt Freeman, senior vice president of Navy Federal Credit Union, in the statement. “So with the support of Visa, we are evaluating how this technology could fit into our broader strategy to deliver meaningful value to our 15 million members worldwide.”
Business
Not all CEOs favor Trump’s executive order to block state AI laws
Published
49 minutes agoon
December 15, 2025By
Jace Porter
Good morning. What do companies in health care, insurance, utilities, construction, professional services, financial services, education, transportation, waste management, and alcohol/cannabis distribution, among others, have in common? They’re regulated at the state level. In certain areas (food safety, environmental standards and data privacy), a mix of state and federal mandates apply. Washington sets the baseline, and individual states layer on laws that aim to reflect the priorities of local voters. In the absence of a federal missive, like Roe v. Wade in legalizing abortion, state regulations apply.
So one might assume that CEOs would welcome Donald Trump’s executive order on AI last week that blocks state laws setting AI standards in favor of “a minimally burdensome national standard.” Silicon Valley types like OpenAI CEO Sam Altman, venture capitalist Marc Andreessen and, of course, AI czar David Sacks, praise the move as necessary for America to compete against the bête noire of China. But seven leaders I spoke with had more mixed views. (I spoke to them without attribution to encourage honest feedback.)
Nobody wants a growing patchwork of state laws that cause confusion, rising compliance costs, or what one person called “a race to be the Delaware of AI.” But neither do they want a vacuum when it comes to mitigating the risks or a situation where laws are set by the White House instead of Congress. Among the concerns:
The Executive Order is probably not legal. Everyone agreed that Trump can’t dismiss state rights with the stroke of a pen. As law firm Fisher Phillips notes, “all current and pending state and local AI laws will remain enforceable unless and until a court blocks them through an injunction, or Congress passes a federal law that preempts them.” The consensus: Congress should act—and fear-mongering doesn’t help. “I’m in a state with a lot of regulation and a lot of innovation,” said one California-based CEO. “What matters is resources, talent and technology.”
Businesses want clarity and protection. Tennessee’s ELVIS Act protects individuals from the unauthorized use of AI to mimic their voice and likeness; Texas prohibits its use for unlawful discrimination or sexually explicit content. Colorado requires companies to inform consumers when AI is used for high-stakes decisions from hiring to lending. Smaller businesses want the behemoths of tech kept in check. “Rules can level the playing field,” said one source, “and it’s more expensive to set standards in court.”
The U.S. needs to maintain its competitive edge. The EU Artificial Intelligence Act gives people the right to opt out of having their data used to train models, which stifles innovation. China has an AI Plus framework and President Xi Jinping has proposed creating a World Artificial Intelligence Cooperation Organization (WAICO) to promote a global governance system. The U.S. needs to, as one person put it, have a seat at the table with laws that protect copyright, patents, market access and consumer protections while driving regulation. “I’d rather have less regulation than more regulation,” an enterprise tech leader told me on Friday, “but I’d rather have some regulation than no regulation.”
Contact CEO Daily via Diane Brady at diane.brady@fortune.com
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CEO Daily is compiled and edited by Claire Zillman and Lee Clifford.
Business
Rob Reiner, comedy legend who directed ‘When Harry Met Sally’ and ‘Spinal Tap,’ dead at 78
Published
1 hour agoon
December 15, 2025By
Jace Porter
Rob Reiner, the son of a comedy giant who went on to become one, himself, as one of the preeminent filmmakers of his generation with movies such as “The Princess Bride,” “When Harry Met Sally …” and “This Is Spinal Tap,” has died. He was 78.
Reiner and his wife, Michele Singer, were found dead Sunday at their home in the Brentwood neighborhood of Los Angeles. A law enforcement official briefed on the investigation confirmed that Reiner and Singer were the victims. The official could not publicly discuss details of the investigation and spoke to The Associated Press on condition of anonymity.
Authorities were investigating an “apparent homicide,” said Capt. Mike Bland with the Los Angeles Police Department. The Los Angeles Fire Department said it responded to a medical aid request shortly after 3:30 p.m.
Reiner grew up thinking his father, Carl Reiner, didn’t understand him or find him funny. But the younger Reiner would in many ways follow in his father’s footsteps, working both in front and behind the camera, in comedies that stretched from broad sketch work to accomplished dramedies.
“My father thought, ‘Oh, my God, this poor kid is worried about being in the shadow of a famous father,’” Reiner said, recalling the temptation to change his name to “60 Minutes” in October. “And he says, ‘What do you want to change your name to?’ And I said, ‘Carl.’ I just wanted to be like him.”
After starting out as a writer for “The Smothers Brothers Comedy Hour,” Reiner’s breakthrough came when he was, at age 23, cast in Norman Lear’s “All in the Family” as Archie Bunker’s liberal son-in-law, Michael “Meathead” Stivic. But by the 1980s, Reiner began as a feature film director, churning out some of the most beloved films of that, or any, era. His first film, the largely improvised 1984 cult classic “This Is Spinal Tap,” remains the urtext mockumentary.
After the 1985 John Cusack summer comedy, “The Sure Thing,” Reiner made “Stand By Me” (1986), “The Princess Bride” (1987) and “When Harry Met Sally …” (1989), a four-year stretch that resulted in a trio of American classics, all of them among the most often quoted movies of the 20th century.
A legacy on and off screen
For the next four decades, Reiner, a warm and gregarious presence on screen and an outspoken liberal advocate off it, remained a constant fixture in Hollywood. The production company he co-founded, Castle Rock Entertainment, launched an enviable string of hits, including “Seinfeld” and “The Shawshank Redemption.” By the turn of the century, its success rate had fallen considerably, but Reiner revived it earlier this decade. This fall, Reiner and Castle Rock released the long-in-coming sequel “Spinal Tap II: The End Continues.”
All the while, Reiner was one of the film industry’s most passionate Democrat activists, regularly hosting fundraisers and campaigning for liberal issues. He was co-founder of the American Foundation for Equal Rights, which challenged in court California’s ban on same-sex marriage, Proposition 8. He also chaired the campaign for Prop 10, a California initiative to fund early childhood development services with a tax on tobacco products. Reiner was also a critic of President Donald Trump.
That ran in the family, too. Reiner’s father opposed the Communist hunt of McCarthyism in the 1950s and his mother, Estelle Reiner, a singer and actor, protested the Vietnam War.
“If you’re a nepo baby, doors will open,” Reiner told the Guardian in 2024. “But you have to deliver. If you don’t deliver, the door will close just as fast as it opened.”
‘All in the Family’ to ‘Stand By Me’
Robert Reiner was born in the Bronx on March 6, 1947. As a young man, he quickly set out to follow his father into entertainment. He studied at the University of California, Los Angeles film school and, in the 1960s, began appearing in small parts in various television shows.
But when Lear saw Reiner as a key cast member in “All in the Family,” it came as a surprise to the elder Reiner.
“Norman says to my dad, ‘You know, this kid is really funny.’ And I think my dad said, ‘What? That kid? That kid? He’s sullen. He sits quiet. He doesn’t, you know, he’s not funny.’ He didn’t think I was anyway,” Reiner told “60 Minutes.”
On “All in the Family,” Reiner served as a pivotal foil to Carroll O’Connor’s bigoted, conservative Archie Bunker. Reiner was five times nominated for an Emmy for his performance on the show, winning in 1974 and 1978. In Lear, Reiner also found a mentor. He called him “a second father.”
“It wasn’t just that he hired me for ‘All in the Family,’” Reiner told “American Masters” in 2005. “It was that I saw, in how he conducted his life, that there was room to be an activist as well. That you could use your celebrity, your good fortune, to help make some change.”
Lear also helped launch Reiner as a filmmaker. He put $7.5 million of his own money to help finance “Stand By Me,” Reiner’s adaptation of the Stephen King novella “The Body.” The movie, about four boys who go looking for the dead body of a missing boy, became a coming-of-age classic, made breakthroughs of its young cast (particularly River Phoenix) and even earned the praise of King.
With his stock rising, Reiner devoted himself to adapting William Goldman’s 1973’s “The Princess Bride,” a book Reiner had loved since his father gave him a copy as a gift. Everyone from François Truffaut to Robert Redford had considered adapting Goldman’s book, but it ultimately fell to Reiner (from Goldman’s own script) to capture the unique comic tone of “The Princess Bride.” But only once he had Goldman’s blessing.
“At the door he greeted me and he said, ‘This is my baby. I want this on my tombstone. This is my favorite thing I’ve ever written in my life. What are you going to do with it?’” Reiner recalled in a Television Academy interview. “And we sat down with him and started going through what I thought should be done with the film.”
Though only a modest success in theaters, the movie — starring Cary Elwes, Mandy Patinkin, Wallace Shawn, André the Giant and Robin Wright — would grow in stature over the years, leading to countless impressions of Inigo Montoya’s vow of revenge and the risky nature of land wars in Asia.
‘When Harry Met Sally …”
Reiner was married to Penny Marshall, the actor and filmmaker, for 10 years beginning in 1971. Like Reiner, Marshall experienced sitcom fame, with “Laverne & Shirley,” but found a more lasting legacy behind the camera.
After their divorce, Reiner, at a lunch with Nora Ephron, suggested a comedy about dating. In writing what became “When Harry Met Sally …” Ephron and Reiner charted a relationship between a man and a woman (played in the film by Billy Crystal and Meg Ryan) over the course of 12 years.
Along the way, the movie’s ending changed, as did some of the film’s indelible moments. The famous line, “I’ll have what she’s having,” said after witnessing Ryan’s fake orgasm at Katz’s Delicatessen, was a suggestion by Crystal — delivered by none other than Reiner’s mother, Estelle.
The movie’s happy ending also had some real-life basis. Reiner met Singer, a photographer, on the set of “When Harry Met Sally …” In 1989, they were wed. They had three children together: Nick, Jake and Romy.
Reiner’s subsequent films included another King adaptation, “Misery” (1990) and a pair of Aaron Sorkin-penned dramas: the military courtroom tale “A Few Good Men” (1992) and 1995’s “The American President.”
By the late ’90s, Reiner’s films (1996’s “Ghosts of Mississippi,” 2007’s “The Bucket List”) no longer had the same success rate. But he remained a frequent actor, often memorably enlivening films like “Sleepless in Seattle” (1993) and “The Wolf of Wall Street” (2013). In 2023, he directed the documentary “Albert Brooks: Defending My Life.”
In an interview earlier this year with Seth Rogen, Reiner suggested everything in his career boiled down to one thing.
“All I’ve ever done is say, ‘Is this something that is an extension of me?’ For ‘Stand by Me,’ I didn’t know if it was going to be successful or not. All I thought was, ‘I like this because I know what it feels like.’”
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