The US market’s advance is predicated on multiple expansion

So the past year has been the year of earnings decline. Yet, the US stock market keeps powering to new highs. What's going on? It's called multiple expansion and it is the hallmark of all bull markets, cyclical or secular. The question is how long earnings will remain stagnant and whether this multiple expansion can continue in the face of stagnant earnings.
We know why multiples have expanded in the past: when interest rates go down, discount rates for future earnings go down and so those earnings are worth more. Lower rates therefore equal higher multiples, everything else equal. If you add in higher earnings that gets you a lot of share appreciation. The problem of course is that earnings have started to decline and rates have started to rise. Yet, the US equities market is still power...


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