Bernstein's global equity strategist Vadim Zlotnikov gave a terrific presentation in New York last week on the state of the market.
Two charts in particular stood out in his talk, in my opinion.
Vadim pointed out that over 90% of the market's gains over the past year
have been because of multiple expansion. Investors are paying higher
prices for earnings as confidence in continued economic growth
continues. In addition, low interest rates on bonds has driven down the
required earnings yield on stocks.
A number of other bearish strategists - most notably, GMO's Jeremy Grantham - have been arguing that stocks are vulnerable because corporate record high profit margins are unsustainable.
However, Bernstein's work suggests otherwise, as Vadim's chart shows:
While there is no arguing that the length of the current rally would seem to make it vulnerable to a market correction in the near future, a more serious market downturn seems unlikely so long as credit conditions remain favorable and revenue trends positive.