The high multiples anticipated perfectly the improved profit performance to follow. In the aggregate, valuations have expanded tremendously over the course of this bull market. The real question, as is the question in every bull market turned euphoric event episode, is how high is too high. Given that the rate of change of the rate of change in corporate profitability is beginning to falter and perceptions of inflation are beginning to move from complacency to concern, valuations in many areas of the market that were very stretched have begun to contract. Some contraction has been violent.
Traditional valuation measures no longer apply.
The market of the moment appears to us to have begun the journey across the financial battlefield from euphoria towards realism. How far this journey will lead is anyone's guess. Most assuredly the trek will not be linear. It will most likely play out in fits and starts. The landmines and unexploded munitions planted along the way will undoubtedly alter perceptions as the pilgrimage continues.