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Old video of Peter Lynch says the market PE is normally between 10 and 20...

FWIW, I created a rule of thumb for myself for how the market values stocks.
Axiomatically, the market-wide average return on capital equals the market-wide average cost of capital.
That number can be thought of as a blend of the typical stock earnings yield and the typical anticipated future real interest rate.
The stock-only figure will be slightly higher than the overall weighted average. Call that X.

All mentions of earnings yield and P/E below are assumed to be cyclically adjusted, estimated for the future.

The rule:
The typical stock will trade at a P/E that is a direct function of that number X.
Stocks expected to have high growth tend to trade at an earnings yield about 3% below that number.
Stocks expected to be dead-ender cash cows will tend to trade at an earnings yield about 3% above that number.

Say in the olden days when life was normal, that figure X was (say) 7.7%, with an average firm at a P/E of 13.
That means that growth firms might have traded at an earnings yield of 4.7% = P/E of 21.3
And cash cows firms might trade at an earnings yield of 10.7% = P/E of 9.3
That all seems to make sense, so far.
No new insights.

But, now imagine the market expects the average return in future to average 3.5% lower, so X is 3.5% lower.
That drops the "benchmark" earnings yield to 4.2%, meaning the typical firm trades at a P/E of 23.8.
Dead end cash cows trade up to a P/E of 13.9 and growth firms trade at a typical P/E of 83.
Just another half percent lower, and cash cows rise only a bit to 14.9 but growth rises to 143.

The interesting thing is that this view explains why growth stocks have not merely got
proportionally more expensive as market valuations have risen in recent years, but exponentially so.

As expected typical forward real returns get closer to 3%, the targeted earnings yield at a "growth" firm becomes meaningless.
The earnings yield, and the earnings themselves, are no longer sought after and no longer really an input to valuation levels.
All earnings numbers are equally valid provided only that the firm is still appreciated to be fully at the growth end of the available alternatives.
Consistent with that, sales growth rate has been the best single factor predicting market
performance in the last few years--much better than earnings growth which traditionally worked better.

A possible corollary: one should expect to see the phenomenon of fallen growth angels.
A fall in the perceived growth rate prospects will cause earnings to matter when they never did before.

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