Article at a glance:

What happened to the bull market?

By the time NASDAQ reached its peak in the recent bull market, many financial commentators had begun to accept the idea that the traditional triumvirate of earnings growth, inflation, and interest rates no longer drives stock market valuations. Instead, these commentators suggested, new factors—such as structural changes in the economy, new rules of economics, and the value of intangible assets and brands—now underpin stock prices. Were they right?

The take-away

Using a simple model based on changes in earnings, inflation, and interest rates, the authors found that traditional factors alone explain most of the medium- and long-term movement of the S&P index of 500 stocks since 1980 and even earlier. They uncovered scant evidence that the market has changed the things it consistently factors into stock prices.