The multiple is not really about growth

With equities having made new highs, there is some discussion (not to overstate the point) that the market must be pricing a meaningful acceleration of growth.  The idea the market prices growth per se is less popular than it was earlier in the bull market, but it is still out there and presumably exerting some influence. 

In this report, I bring together a few themes I have been pushing to argue my high-conviction view that there is little relationship between the level of the market, as expressed in the multiple or earnings yield, and the expected economic growth rate.  Within the logic of a market DDM, and seemingly empirically to a large extent, the level of the market is determined much more by the gap between growth and interest rates and by the equity premium, which seems heavily influenced by underlying economic volatility.
For me, this is an old idea, and I don’t mean to imply that the content of this report has any implication for the next wiggle in the market. Rather, I expect this report have a fairly decent shelf life.  For now, we should worry more about recession than about the growth rate per se.