That’s basically correct. The problem is that it’s not sustainable, sometime in the future the earnings decrease by about 20% (plus the catastrophic damage from USG default). It’s basically just another round of QE. They can never stop, or the market will crash, so it’s just round after round…until the bitter end.
But corporations are only programed to calculate short-term, so for now it’s “woo hoo” more free money!
“Given corporations represent the largest single source of demand for U.S. shares…”
The Goldman analyst is right in this piece, but it’s so much bigger. America’s corporate-government state (you can’t separate the two as distinct entities anymore) is the largest ponzi in the history of civilization. You have the USG borrowing money, to subsidize S&P500 profits, to buy back their own shares (“see US equities outperformed!”). It manipulates P/E lower, increases returns, decreases volatility, and temporarily holds back money from fleeing to Asia.
But what happens when this massive supply of shares reverse, dumped back on the market? Then everything flips back the other way, same as when you reverse QE.
just saw a pretty interesting research piece that analyzed forward pe ratios depending on inflation. bottomline
if inflation remains below 4% then we are at fair value. if inflation is above it then fair value for S&P 500 is around ~2150.