Oct 12, 2026 · 9 min · 4 segments
This week in the markets: the equity bull market is four years old this week and, as third quarter earnings season kicks off with high expectations, shares are holding their gains despite the growing…
It's not been an unusual bull market in length or strength, but it has been notable for its dependence on one powerful theme and the narrowness of its leadership.
The equal weighted S&P 500 index is up by a much more tepid 47% over the past four years, well below average.
The dependence on the tech leaders has, if anything, grown more intense over the summer.
Rising bond yields are starting to have an impact on companies with anything other than bulletproof balance sheets, as borrowing costs rise both for the businesses themselves and for their customers.
US mortgage rates are sitting above 7%, where they're pouring cold water on the American housing market just as much as they are over here.
With 10-year bond yields well into the danger zone above 5%, the question now is, how high is too high for bond yields from an equity market perspective? And the answer to that seems to hang on the extent to which buoyant earnings can keep the show on the road.
With the third quarter season getting us started this week, the consensus estimate is for a 25% growth rate.
And if the evidence of recent quarters is anything to go by, that could well be an underestimate.
And that kind of stellar earnings growth is keeping the valuation of the market at a level where talk of a bubble feels wide of the mark.
The price earnings ratio of the market has actually fallen despite the rise in share prices because of that rise in earnings.
At less than 20 times expected earnings, the valuation of the US market is high, but it's not extreme, and other markets around the world are considerably cheaper than this.
You could argue that valuations should be lower given the obviously unsustainable nature of an annualized growth rate in earnings above 20%.
Normally, investors start to discount the end of an earnings boom well ahead of the actual peak in earnings.
They stop being prepared to pay up for high earnings growth even while it is still showing up in the results announcements.
Looking at the data since the Second World War, you might expect a price earnings ratio in the low teens at today's high level of earnings growth.
So the question then becomes both whether valuations are too high for peak earnings and whether those earnings can be maintained.
The reason why they might be different is that high earnings growth today is not a result of a recovery from a recession or COVID, but rather the product of a genuine technological revolution.
The key is whether the productivity gains of the AI boom can keep them that way.
And the answer to all of those questions matters because if you compare a chart of the stock market since the bottom four years ago with the same market in the four years from the mid to the late 1990s, the similarities are uncanny.
It's not been an unusual bull market in length or strength, but it has been notable for its dependence on one powerful theme and the narrowness of its leadership.
The equal weighted S&P 500 index is up by a much more tepid 47% over the past four years, well below average.
The dependence on the tech leaders has, if anything, grown more intense over the summer.
Rising bond yields are starting to have an impact on companies with anything other than bulletproof balance sheets, as borrowing costs rise both for the businesses themselves and for their customers.
US mortgage rates are sitting above 7%, where they're pouring cold water on the American housing market just as much as they are over here.
With 10-year bond yields well into the danger zone above 5%, the question now is, how high is too high for bond yields from an equity market perspective? And the answer to that seems to hang on the extent to which buoyant earnings can keep the show on the road.
With the third quarter season getting us started this week, the consensus estimate is for a 25% growth rate.
And if the evidence of recent quarters is anything to go by, that could well be an underestimate.
And that kind of stellar earnings growth is keeping the valuation of the market at a level where talk of a bubble feels wide of the mark.
The price earnings ratio of the market has actually fallen despite the rise in share prices because of that rise in earnings.
At less than 20 times expected earnings, the valuation of the US market is high, but it's not extreme, and other markets around the world are considerably cheaper than this.
You could argue that valuations should be lower given the obviously unsustainable nature of an annualized growth rate in earnings above 20%.
Normally, investors start to discount the end of an earnings boom well ahead of the actual peak in earnings.
They stop being prepared to pay up for high earnings growth even while it is still showing up in the results announcements.
Looking at the data since the Second World War, you might expect a price earnings ratio in the low teens at today's high level of earnings growth.
So the question then becomes both whether valuations are too high for peak earnings and whether those earnings can be maintained.
The reason why they might be different is that high earnings growth today is not a result of a recovery from a recession or COVID, but rather the product of a genuine technological revolution.
The key is whether the productivity gains of the AI boom can keep them that way.
And the answer to all of those questions matters because if you compare a chart of the stock market since the bottom four years ago with the same market in the four years from the mid to the late 1990s, the similarities are uncanny.
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