Part 7/14:
Historical evidence also shows that valuation multiples can rise even as interest rates increase. From 1940 to 1967, despite a rise in nominal interest rates, PE ratios soared from around 8 to 27, driven by increased earnings. Today, most of the earnings in the S&P index come from recurring revenues, which justify higher multiples. Additionally, with the 10-year bond yield at approximately 4%, a 25 PE is not extraordinary; in fact, the bond market's elevated yields suggest a more expensive valuation environment.