Bubble fears in a cheaper market

Lots of weekend speculation about whether AI is back in bubble territory is understandable, but it can obscure the broader picture. The market well beyond the most obviously AI-exposed names is still delivering strong earnings growth and positive earnings momentum. Despite the FY1 P/E for global public companies above $50bn has eased from high 20s to low 20s over the last 12 months.

That said, rising Treasury yields are clearly a concern for equity investors because higher rates increase the discount rate applied to future earnings and can pressure valuation multiples.But the current yield at 4.54% is only modestly above 4.41% a year ago, when the universe P/E was still 2-3 points higher, suggesting today’s market is cheaper than the headline bubble debate implies.

The message from the chart is not that valuations are low in absolute terms, but that strong earnings have done some of the work needed to justify them. In that context, the more important question may be whether earnings momentum can keep pace with a bond market that is no longer offering the same valuation support as it did a year ago.