Has the market lost its mind? Probably. But there’s a slim chance that equities are entering a new era of high valuation

by Arabella Harmony

If you’re one of those calm, rational investors who believes that earnings, not wild shifts in momentum, drive stock prices, you’ll probably draw the logical conclusion from the phenomenal rally in stocks: The markets are unhinged from reality.

Indeed, the view that stocks are defying gravity and will fall to earth is probably the right one. But a slim chance exists that equities are entering a new era of super-high valuations, and not just for a couple of years—a trademark of past bubbles—but as an enduring new normal. The reason: Interest rates on risk-free Treasuries that compete with stocks for investors’ dollars will remain far below historic norms for many years to come.

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