linear algebra

Stock Valuations On the Rise

This is a point with very interesting implications. I have been waiting to see something about the odd direction of multiples, since generally p/e's contract, rather than expand, in recessions. What's happening strongly suggests that there may be a second leg down in the bear market, driven by such a contraction, if it comes. If so, there are a couple of different reasons that will be used to explain such a contraction.
Also, the contrast with the performance (in terms of multiples) of emerging markets equities is something to think about. In terms of index levels, emerging markets equities have declined even more sharply than the S&P 500, and all the decline has been in multiple contraction--the only offset has been slight, and attributable to earnings growth. Maybe that's increased risk aversion, and will be enduring. Perhaps it's simply price correlation across the asset classes, and there will be a bit of whiplash and divergence if there's a second leg down in the developed world markets.