The brief’s key findings are:
- Stocks have diverged from historic averages for periods of 10 to 20 years.
- This divergence reflects fluctuations in: 1) corporate earnings; and 2) investors’ assessments of those earnings.
- Corporate earnings vary, but tend to stabilize and return to long-term economic trends within a few years.
- In contrast, investors’ valuations have been more volatile, taking decades to fully stabilize.