Suppose everyone expects Apple to increase its earnings by 20% next year. Due to the general expectation, the current stock price will incorporate this information. For example, if subsequently Apple reports earnings that vindicates everyone's expectations, Apple's stock price will change by approximately $0, ceteris paribus. From my understanding, if everyone has the same expectations of an investment, the NPV of the investment is $0, because the expectations will be priced-in in such a way that makes the NPV = $0.
I've been looking at index funds (e.g. S&P 500 ETFs). These funds seem to be commonly recommended for people with long investment horizons who want a passive diversified exposure to stocks. It appears that index funds are generally recommended on the basis that they "tend to increase in value over the long-run". From my observations, this "passive index fund investing" style has a very large following, especially in the US. For the moment, let us ignore the potential objections to the belief that index funds "tend to increase in value over the long-run", and let us assume that index funds are really going to increase in value in the future. Issues:
If the value of index funds is generally expected to increase, and people now continue to pump money into index funds in the belief that the values will materialize, wouldn't the future returns be approximately $0, as in the case of Apple illustrated above?
What prevents the future expectations of index fund performance from being priced-in at this very moment, thus ensuring that future returns will be mediocre?