There is some undeniable inefficiency to index funds in terms of rewarding underperformers and punishing high performers in the index. This effect makes it easi

There is some undeniable inefficiency to index funds in terms of rewarding underperformers and punishing high performers in the index. This effect makes it easier for the under-performers to attract top talent with stock options and raise money, and vice versa. Whether that adds up to being a big deal over time is anyone's guess. As far as how this will affect markets on a macro scale, I suspect it will reduce short term volatility and increase long term swings. I.e., once the percentage of wealth entering index funds has stabilized and we reach the top of a market cycle, the entire index may fall more than normal. People investing passively will indeed start selling when they see a 40% drawdown on their portfolio and panicking headlines across their feed.